Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act. Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o(Do not check if a
smaller reporting company)

Smaller reporting company o

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No ý

The aggregate fair market value of the registrant's common stock outstanding and held by non-affiliates as of August 2, 2013 was $18.01 billion
calculated using the closing market price of our common stock as reported on the NYSE on such date ($55.79). For this purpose, directors, executive officers and greater than 10% record shareholders
are considered the affiliates of the registrant.

The
registrant had 313,596,983 shares of common stock outstanding as of March 13, 2014.

DOCUMENTS INCORPORATED BY REFERENCE

Certain of the information required in Part III of this Form 10-K is incorporated by reference to the Registrant's definitive proxy statement to be
filed for the Annual Meeting of Shareholders to be held on May 29, 2014.

INTRODUCTION

General

This report contains references to years 2014, 2013, 2012, 2011, 2010, and 2009, which represent fiscal years ending or ended
January 30, 2015, January 31, 2014, February 1, 2013, February 3, 2012, January 28, 2011, and January 29, 2010, respectively. Our fiscal year ends on the
Friday closest to January 31, and each of the years listed will be or were 52-week years, with the exception of 2011 which consisted of 53 weeks. All of the discussion and analysis in
this report should be read with, and is qualified in its entirety by, the Consolidated Financial Statements and related notes.

Solely
for convenience, our trademarks and tradenames may appear in this report without the ® or TM symbol which is not intended to indicate that we will not assert, to the
fullest extent under applicable law, our rights or the right to these trademarks and tradenames.

Cautionary Disclosure Regarding Forward-Looking Statements

We include "forward-looking statements" within the meaning of the federal securities laws throughout this report, particularly under
the headings "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Note 8Commitments and Contingencies," among others. You can
identify these statements because they are not limited to historical fact or they use words such as "may," "will," "should," "could," "believe," "anticipate," "project," "plan," "expect," "estimate,"
"forecast," "goal," "potential," "opportunity," "intend," "will likely result," or "will continue" and similar expressions that concern our strategy, plans, intentions or beliefs about future
occurrences or results. For example, all statements relating to our estimated and projected expenditures, cash flows, results of operations, financial condition and liquidity; our plans, objectives
and expectations for future operations, growth or initiatives; or the expected outcome or effect of of legislative or regulatory changes or initiatives, pending or threatened litigation or audits are
forward-looking statements.

All
forward-looking statements are subject to risks and uncertainties that may change at any time, so our actual results may differ materially from those that we expected. We derive many
of these statements from our operating budgets and forecasts, which are based on many detailed assumptions that we believe are reasonable. However, it is very difficult to predict the effect of known
factors, and we cannot anticipate all factors that could affect our actual results.

Important
factors that could cause actual results to differ materially from the expectations expressed in our forward-looking statements are disclosed under "Risk Factors" in
Part I, Item 1A and elsewhere in this document (including, without limitation, in conjunction with the forward-looking statements themselves and under the heading "Critical Accounting
Policies and Estimates"). All forward-looking statements are qualified in their entirety by these and other cautionary statements that we make from time to time in our other SEC filings and public
communications. You should evaluate such statements in the context of these risks and uncertainties. These factors may not contain all of the factors that are important to you. We cannot assure you
that we will realize the results or developments we anticipate or, even if substantially realized, that they will result in the consequences or affect us in the way we expect. Forward-looking
statements are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except
as otherwise required by law.

1

PART I

ITEM 1. BUSINESS

General

We are the largest discount retailer in the United States by number of stores, with 11,215 stores located in 40 states as of
February 28, 2014, primarily in the southern, southwestern, midwestern and eastern United States. We offer a broad selection of merchandise, including consumables, seasonal, home products and
apparel. Our merchandise includes high quality national brands from leading manufacturers, as well as comparable quality private brand selections with prices at substantial discounts to national
brands. We offer our merchandise at everyday low prices (typically $10 or less) through our convenient small-box locations, with selling space averaging approximately 7,400 square feet.

Our History

J.L. Turner founded our Company in 1939 as J.L. Turner and Son, Wholesale. We were incorporated as a Kentucky corporation under the
name J.L. Turner & Son, Inc. in 1955, when we opened our first Dollar General store. We changed our name to Dollar General Corporation in 1968 and reincorporated in 1998 as a Tennessee
corporation. Our common stock was publicly traded from 1968 until July 2007, when we merged with an entity controlled by investment funds affiliated with Kohlberg Kravis
Roberts & Co. L.P., or KKR. In November 2009 our common stock again became publicly traded, and in December 2013 the entity controlled by investment funds affiliated with KKR sold
its remaining shares of our common stock.

Our Business Model

Our long history of profitable growth is founded on a commitment to a relatively simple business model: providing a broad base of
customers with their basic everyday and household needs, supplemented with a variety of general merchandise items, at everyday low prices in conveniently located, small-box stores. We continually
evaluate the needs and demands of our customers and modify our merchandise selections and pricing accordingly, while remaining focused on increasing profitability and returns for our shareholders.

Fiscal
year 2013 represented our 24th consecutive year of same-store sales growth. This growth, regardless of economic conditions, suggests that we have a less
cyclical business model than most retailers and, we believe, is a result of our compelling value and convenience proposition.

Compelling Value and Convenience Proposition. Our ability to deliver highly competitive prices on national brand and quality
private brand products
in convenient locations and our easy "in and out" shopping format create a compelling shopping experience that distinguishes us from other discount, convenience and drugstore retailers. Our slogan of
"Save time. Save money. Every day!" summarizes our appeal to customers. We believe our ability to effectively deliver both value and convenience allows us to succeed in small markets with limited
shopping alternatives, as well as to profitably coexist alongside larger retailers in more competitive markets. Our value and convenience proposition is evidenced by the following attributes of our
business model:



Convenient Locations. Our stores are conveniently located
in a variety of rural, suburban and urban communities, currently with approximately 70% serving communities with populations of fewer than 20,000. In more densely populated areas, our small-box stores
typically serve the closely surrounding neighborhoods. The majority of our customers live within three to five miles, or a 10-minute drive, of our stores. Our close proximity to customers drives
customer loyalty and trip frequency and makes us an attractive alternative to large discount and other large-box retail

2

and
grocery stores which are often located farther away. Our low-cost economic model enables us to serve many areas with fewer than 1,500 households.

Everyday Low Prices on Quality Merchandise. Our research
indicates that we offer a price advantage over most food and drug retailers and that our prices are highly competitive with even the largest discount retailers. Our ability to offer everyday low
prices on quality merchandise is supported by our low-cost operating structure and our strategy to maintain a limited number of stock keeping units ("SKUs") per category, which we believe helps us
maintain strong purchasing power. Most items are priced at $10 or less, with approximately 25% at $1 or less. We offer quality nationally advertised brands at these everyday low prices in addition to
offering our own comparable quality private brands at value prices.

Substantial Growth Opportunities. We believe we have substantial long-term growth potential in the U.S. We have identified
significant opportunities
to add new stores in both existing and new markets. In addition, we have opportunities within our existing store base to relocate or remodel to better serve our customers.

Our Operating Priorities

We believe we continue to have significant opportunities to drive profitable growth by continuing to expand upon our simple business
model, which is largely focused on serving the needs of the low, low-middle and fixed income consumer, a segment of the U.S. population that has continued to grow over the past several years. We
believe our four key operating priorities, initially established in 2008, remain critical to the long-term growth and profitability of our company. These priorities are 1) drive productive
sales growth; 2) increase, or enhance, our gross profit rate; 3) leverage process improvements and information technology to reduce costs; and 4) strengthen and expand Dollar
General's culture of serving others.

Drive Productive Sales Growth. We believe our customer-driven merchandise mix and attractive value proposition, combined with
the impact of our
remodeled and relocated stores provide a strong basis for increased same-store sales. On a comparable 52-week basis, our same-store sales increased 3.3% in 2013, 4.7% in 2012 and 6.0% in 2011. Our
average net sales per square foot, based on total stores, increased to $220 in 2013 from $216 in 2012 and $213 in 2011 (which included a contribution of approximately $4 from the
53rd week.)

In
2013, among other initiatives, we further expanded our perishables offerings and added tobacco products to our stores, both of which contributed significantly to our same-store sales
growth. We believe that selling tobacco products and perishables drives more frequent shopping trips by our existing customers and attracts new customers by making our stores more relevant to a
broader customer base. We believe we have opportunities to increase our store productivity in 2014 through continued improvements in store space utilization, pricing and markdown optimization and
additional merchandising initiatives. We also plan to continue to remodel stores to update our appearance and relocate stores to increase square footage, where needed, improve visibility and
accessibility or to obtain more attractive lease terms.

3

Our
new store expansion strategy also is a critical element of our priority to drive productive sales growth. We have confidence in our real estate disciplines and in our ability to
identify, open and operate successful new stores. In 2013, we opened 650 new stores and increased our selling square footage by 6.6%. We recently completed a study of our remaining new store
opportunities utilizing new site selection technology. The results of our initial review affirm our confidence in our ability to continue to expand our store base at the current pace for the
foreseeable future. In 2014, we plan to
open 700 new stores and increase our square footage by over 6% as we continue to expand in our core markets and newer states.

We
remain committed to an everyday low price ("EDLP") strategy that our customers can depend on. To strengthen our adherence to this strategy and still protect gross profit, we utilize
various pricing and merchandising options, including zone pricing, markdown optimization strategies and changes to our product selection, such as alternate national brands and private brands, which
generally have higher gross profit rates. In addition, we maintain an ongoing focus on reducing transportation and distribution costs as well as minimizing inventory shrinkage and damages. The
addition of tobacco products and our continued expansion of perishable food items in 2013 contributed significantly to increases in sales and gross profit dollars, although, as expected, at a lower
gross profit rate. Importantly, we believe these categories are instrumental to attaining our goals of driving more frequent shopping trips and attracting new customers. Furthermore, we believe our
inventory shrinkage rate increased, in part, due to our addition of various items with relatively higher retail prices, many of which were in our health and beauty departments.

Over
the long term, we will continue our efforts to reduce product costs through further expansion of our private brands, shrink reduction, foreign sourcing, the use of online
procurement auctions and incremental distribution and transportation efficiencies. We also plan to continue to introduce new products that meet our customers' needs into our home, apparel and seasonal
categories, which generally have higher gross profit rates than consumables.

Leverage Process Improvements and Information Technology to Reduce Costs. As part of our ongoing effort to improve our cost
structure and enhance
efficiencies throughout the organization, in 2013 we made further progress in our efforts to simplify our store processes. This progress contributed to a reduction in store labor as a percentage of
sales. In addition, we realized cost savings from our centralized procurement initiative and other expense reduction efforts. In 2014, we expect to achieve further savings from our procurement
initiatives and will remain focused on controlling those expenses that are within our control. Note that certain factors primarily related to our cash incentive compensation plan caused certain
expenses in 2013 to be less than those expected in 2014 and beyond, as explained in further detail in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in
Part II, Item 7 of this report.

Strengthen and Expand Our Culture of Serving Others. The mission of "Serving Others" has been key to the culture of Dollar
General for many years and
we recognize the importance of this mission to our
long-term success. For customers this means helping them "Save time. Save money. Every day!" by providing clean, well-stocked stores with quality products at low prices. For employees, this means
creating an environment that attracts and retains key employees throughout the organization. For the public, this means giving back to our store communities through our charitable and other efforts.
For shareholders, this means meeting their expectations of an efficiently and profitably run organization that operates with compassion and integrity.

4

Our Merchandise

We offer a focused assortment of everyday necessities, which drive frequent customer visits, and key items in a broad range of general
merchandise categories. Our product assortment provides the opportunity for our customers to address most of their basic shopping needs with one trip. We sell high-quality national brands from leading
manufacturers such as Procter & Gamble, PepsiCo, Coca-Cola, Nestle, General Mills, Unilever, Kimberly Clark, Kellogg's and Nabisco, which are typically found at higher retail prices elsewhere.
Additionally, our private brand consumables offer even greater value with options to purchase value items and national brand equivalent products at substantial discounts to the national brand.

Our
stores generally offer approximately 10,000 total SKUs per store; however, the number of SKUs in a given store can vary based upon the store's size, geographic location,
merchandising initiatives, seasonality, and other factors. Most of our products are priced at $10 or less, with approximately 25% at $1 or less. We separate our merchandise into four categories:
1) consumables; 2) seasonal; 3) home products; and 4) apparel.

Apparel
includes casual everyday apparel for infants, toddlers, girls, boys, women and men, as well as socks, underwear, disposable diapers, shoes and accessories.

The
percentage of net sales of each of our four categories of merchandise for the fiscal years indicated below was as follows:

2013

2012

2011

Consumables

75.2

%

73.9

%

73.2

%

Seasonal

12.9

%

13.6

%

13.8

%

Home products

6.4

%

6.6

%

6.8

%

Apparel

5.5

%

5.9

%

6.2

%

Our
seasonal and home products categories typically account for the highest gross profit margins, and the consumables category typically accounts for the lowest gross profit margin.

The Dollar General Store

The typical Dollar General store has, on average, approximately 7,400 square feet of selling space and is typically operated by a store
manager, an assistant store manager and three or more sales associates. Approximately 66% of our stores are in freestanding buildings and
34% are in strip shopping centers. Most of our customers live within three to five miles, or a 10 minute drive, of our stores.

Our
typical store features a low cost, no frills building with limited maintenance capital, low operating costs, and a focused merchandise offering within a broad range of categories,
allowing us to

5

deliver
low retail prices while generating strong cash flows and investment returns. Our initial capital investment in new stores and relocations varies depending on the lease structure or ownership
as well as the size and location of the store and the number of coolers appropriate for the location.

We
generally have had good success in locating suitable store sites in the past, and we believe that there is ample opportunity for new store growth in existing and new markets. In
addition, we believe we have significant opportunities available for our relocation and remodel programs.

Our
recent store growth is summarized in the following table:

Year

Stores at
Beginning
of Year

Stores
Opened

Stores
Closed

Net
Store
Increase

Stores at
End of Year

2011

9,372

625

60

565

9,937

2012

9,937

625

56

569

10,506

2013

10,506

650

24

626

11,132

Our Customers

Our customers seek value and convenience. Depending on their financial situation and geographic proximity, customers' reliance on
Dollar General varies from using Dollar General for fill-in shopping, to making periodic trips to stock up on household items, to making weekly or more frequent trips to meet most essential needs. We
generally locate our stores and plan our merchandise selections to best serve the needs of our core customers, the low to lower-middle or fixed income households often underserved by other retailers.
At the same time, however, customers from a wide range of income brackets and life stages appreciate our quality merchandise and attractive value and convenience proposition and are loyal Dollar
General shoppers. In the last year, we have continued to see increases in the annual number of shopping trips that our customers make to our stores as well as the amount spent during each trip.

To
attract new and retain existing customers, we continue to focus on product selection, in-stock levels, pricing, targeted advertising, store standards, convenient site locations, and a
pleasant overall customer experience.

Our Suppliers

We purchase merchandise from a wide variety of suppliers and maintain direct buying relationships with many producers of national brand
merchandise, such as Procter & Gamble, PepsiCo, Coca-Cola, Nestle, General Mills, Unilever, Kimberly Clark, Kellogg's, and Nabisco. Despite our broad offering, we maintain only a limited number
of SKUs per category, giving us a pricing advantage in dealing with our suppliers. Approximately 8% and 7% of our purchases in 2013 were from our largest and second largest suppliers, respectively.
Our private brands come from a diversified supplier base. We directly imported approximately $725 million or 6% of our purchases at cost (10% of our purchases based on their retail value) in
2013. Our vendor arrangements generally provide for payment for such merchandise in U.S. dollars.

We
have consistently managed to obtain sufficient quantities of core merchandise and believe that, if one or more of our current sources of supply became unavailable, we would generally
be able to obtain alternative sources without experiencing a substantial disruption of our business. However, such alternative sources could increase our merchandise costs or reduce the quality of our
merchandise, and an inability to obtain alternative sources could adversely affect our sales.

6

Distribution and Transportation

Our stores are currently supported by twelve distribution centers located strategically throughout our geographic footprint, including
our newest distribution center in Bethel, Pennsylvania which began shipping in January 2014. We lease additional temporary warehouse space as necessary to support our distribution needs. Over the past
few years we have made significant investments in facilities, technological improvements and upgrades, and we continue to improve work processes, all of which increase our efficiency and ability to
support our merchandising and operations initiatives as well as our new store growth. We continually analyze and rebalance the network to ensure that it remains efficient and provides the service our
stores require. See "Properties" for additional information pertaining to our distribution centers.

Most
of our merchandise flows through our distribution centers and is delivered to our stores by third-party trucking firms, utilizing our trailers. Our agreements with these trucking
firms are based on estimated costs of diesel fuel, with the difference in estimated and current market fuel costs passed through to us. The costs of diesel fuel are significantly influenced by
international, political and economic circumstances. If fuel price increases were to arise for any reason, including fuel supply shortages or unusual price volatility, the resulting higher fuel prices
could materially increase our transportation costs.

Seasonality

Our business is seasonal to a certain extent. Generally, our highest sales volume occurs in the fourth quarter, which includes the
Christmas selling season, and the lowest occurs in the first quarter. In addition, our quarterly results can be affected by the timing of certain holidays, the timing of new store openings and store
closings, the amount of sales contributed by new and existing stores, as well as financial transactions such as debt refinancing and stock repurchases. We purchase substantial amounts of inventory in
the third quarter and incur higher shipping costs and higher payroll costs in anticipation of the increased sales activity during the fourth quarter. In addition, we carry merchandise during our
fourth quarter that we do not carry during the rest of the year, such as gift sets, holiday decorations, certain baking items, and a broader assortment of toys and candy.

7

The
following table reflects the seasonality of net sales, gross profit, and net income by quarter for each of the quarters of our three most recent fiscal years. The fourth quarter of
the year ended February 3, 2012 was comprised of 14 weeks, and each of the other quarters reflected below were comprised of 13 weeks.

(in millions)

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year Ended January 31, 2014

Net sales

$

4,233.7

$

4,394.7

$

4,381.8

$

4,493.9

Gross profit

1,295.1

1,377.3

1,328.5

1,434.8

Net income(a)

220.1

245.5

237.4

322.2

Year Ended February 1, 2013

Net sales

$

3,901.2

$

3,948.7

$

3,964.6

$

4,207.6

Gross profit

1,228.3

1,263.2

1,226.1

1,367.8

Net income(b)

213.4

214.1

207.7

317.4

Year Ended February 3, 2012

Net sales

$

3,451.7

$

3,575.2

$

3,595.2

$

4,185.1

Gross profit

1,087.4

1,148.3

1,115.8

1,346.4

Net income(c)

157.0

146.0

171.2

292.5

(a)

Includes
expenses, net of income taxes, of $11.5 million related to the termination of credit facilities in the first quarter of 2013.

(b)

Includes
expenses, net of income taxes, of $17.7 million related to the redemption of long-term obligations in the second quarter of 2012.

(c)

Includes
expenses, net of income taxes, of $35.4 million related to the redemption of long-term obligations in the second quarter of 2011.

Our Competition

We operate in the basic discount consumer goods market, which is highly competitive with respect to price, store location, merchandise
quality, assortment and presentation, in-stock consistency, and customer service. We compete with discount stores and with many other retailers, including mass merchandise, grocery, drug, convenience,
variety and other specialty stores. These other retail companies operate stores in many of the areas where we operate, and many of them engage in extensive advertising and marketing efforts. Our
direct competitors include Family Dollar, Dollar Tree, Fred's, 99 Cents Only and various local, independent operators, as well as Walmart, Target, Kroger, Aldi, Walgreens, CVS, and Rite Aid, among
others. Certain of our competitors have greater financial, distribution, marketing and other resources than we do.

We
differentiate ourselves from other forms of retailing by offering consistently low prices in a convenient, small-store format. We believe that our prices are competitive due in part
to our low cost operating structure and the relatively limited assortment of products offered. Purchasing large volumes of merchandise within our focused assortment in each merchandise category allows
us to keep our average costs low, contributing to our ability to offer competitive everyday low prices to our customers. See "Our Business Model" above for further discussion of our
competitive situation.

Our Employees

As of February 28, 2014, we employed approximately 100,600 full-time and part-time employees, including divisional and regional
managers, district managers, store managers, other store personnel and distribution center and administrative personnel. We have increasingly focused on recruiting,

8

training,
motivating and retaining employees, and we believe that the quality, performance and morale of our employees have increased as a result. We currently are not a party to any collective
bargaining agreements.

Our Trademarks

We own marks that are registered with the United States Patent and Trademark Office and are protected under applicable intellectual
property laws, including without limitation the trademarks Dollar General®, Dollar General Market®, Clover Valley®, DG®, Smart &
Simple®, trueliving®, Sweet Smiles®, Open Trails®, Bobbie Brooks®, Comfort Bay®, Holiday Style®, and Ever
PetTM along with variations and formatives of these trademarks as well as certain other trademarks. We attempt to obtain registration of our trademarks whenever practicable and to pursue
vigorously any infringement of those marks. Our trademark registrations have various expiration dates; however, assuming that the trademark registrations are properly renewed, they have a perpetual
duration.

We
also hold licenses to use various trademarks owned by third parties, including a license to the Fisher Price brand for certain items of children's clothing through December 31,
2014, and an exclusive license to the Rexall brand through March 5, 2020.

Available Information

Our Internet website address is www.dollargeneral.com. We file with or furnish to the Securities and Exchange Commission (the "SEC")
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, proxy statements and annual reports to shareholders,
and, from time to time, registration statements and other documents. These documents are available free of charge to investors on or through the Investor Information portion of our website as soon as
reasonably practicable after we electronically file them with or furnish them to the SEC. In addition, the public may read and copy any of the materials we file with the SEC at the SEC's Public
Reference Room at 100 F Street, NE, Washington DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
an internet site that contains reports, proxy and information statements and other information regarding issuers, such as Dollar General, that file electronically with the SEC. The address of that
website is http://www.sec.gov.

9

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below and the other information contained in this report and other filings that we
make from time to time with the SEC, including our consolidated financial statements and accompanying notes. Any of the following risks could materially and adversely affect our business, financial
condition, results of operations or liquidity. These risks are not the only risks we face. Our business, financial condition, results of operations or liquidity could also be adversely affected by
additional factors that apply to all companies generally or by risks not currently known to us or that we currently view to be immaterial. We can provide no assurance and make no representation that
our mitigation efforts, although we believe they are reasonable, will be successful.

Current economic conditions and other economic factors may adversely affect our financial performance and other aspects of our business by negatively impacting our
customers' disposable income or discretionary spending, increasing our costs of goods sold and selling, general and administrative expenses, and adversely affecting our sales or profitability.

We believe many of our customers have fixed or low incomes and generally have limited discretionary spending dollars. Any factor that
could adversely affect that disposable income would decrease our customers' spending and could cause our customers to shift their spending to products other than those sold by us or to our less
profitable product choices, all of which could result in lower net sales, decreases in inventory turnover, greater markdowns on inventory, a change in the mix of products we sell, and a reduction in
profitability due to lower margins. Factors that could reduce our customers' disposable income and over which we exercise no influence include
but are not limited to a further slowdown in the economy, a delayed economic recovery, or other economic conditions such as increased or sustained high unemployment or underemployment levels,
inflation, increases in fuel or other energy costs and interest rates, lack of available credit, consumer debt levels, higher tax rates and other changes in tax laws, concerns over government mandated
participation in health insurance programs, and decreases in government subsidies such as unemployment and food assistance programs.

Many
of the factors identified above that affect disposable income, as well as commodity rates, transportation costs (including the costs of diesel fuel), costs of labor, insurance and
healthcare, foreign exchange rate fluctuations, lease costs, measures that create barriers to or increase the costs associated with international trade, changes in other laws and regulations and other
economic factors, also affect our cost of goods sold and our selling, general and administrative expenses, and may have other adverse consequences which we are unable to fully anticipate or control,
all of which may adversely affect our sales or profitability. We have limited or no ability to control many of these factors.

Our plans depend significantly on strategies and initiatives designed to increase sales and improve the efficiencies, costs and effectiveness of our operations, and failure
to achieve or sustain these plans could affect our performance adversely.

We have strategies and initiatives (such as those relating to merchandising, sourcing, shrink, private brand, distribution and
transportation, store operations, expense reduction, and real estate) in various stages of testing, evaluation, and implementation, upon which we expect to rely to continue to improve our results of
operations and financial condition and to achieve our financial plans. These initiatives are inherently risky and uncertain, even when tested successfully, in their application to our business in
general. It is possible that successful testing can result partially from resources and attention that cannot be duplicated in broader implementation, particularly in light of the diverse geographic
locations of our stores and the fact that our field management is so decentralized. General implementation also may be negatively affected by other risk factors described herein. Successful systemwide
implementation relies on consistency of training, stability of workforce, ease of execution, and the absence of offsetting factors that can influence results adversely. Failure to achieve successful
implementation of our

10

initiatives
or the cost of these initiatives exceeding management's estimates could adversely affect our business, results of operations and financial condition.

The
success of our merchandising initiatives, particularly those with respect to non-consumable merchandise and store-specific products and allocations, depends in part upon our ability
to predict
consistently and successfully the products that our customers will demand and to identify and timely respond to evolving trends in demographics and consumer preferences, expectations and needs. If we
are unable to select products that are attractive to customers, to obtain such products at costs that allow us to sell them at a profit, or to effectively market such products, our sales, market share
and profitability could be adversely affected. If our merchandising efforts in the non-consumables area or the higher margin areas within consumables are unsuccessful, we could be further adversely
affected by our inability to offset the lower margins associated with our consumables business.

If we cannot open, relocate or remodel stores profitably and on schedule, our planned future growth will be impeded, which would adversely affect sales.

Our ability to open, relocate and remodel profitable stores is a key component of our planned future growth. Our ability to timely open
stores and to expand into additional market areas depends in part on the following factors: the availability of attractive store locations; the absence of entitlement process or occupancy delays; the
ability to negotiate acceptable lease and development terms; the ability to hire and train new personnel, especially store managers, in a cost effective manner; the ability to identify customer demand
in different geographic areas; general economic conditions; and the availability of capital funding for expansion. Many of these factors also affect our ability to successfully relocate stores, and
many of them are beyond our control.

Delays
or failures in opening new stores or completing relocations or remodels, or achieving lower than expected sales in new stores, could materially adversely affect our growth and/or
profitability. We also may not anticipate all of the challenges imposed by the expansion of our operations and, as a result, may not meet our targets for opening new stores, remodeling or relocating
stores or expanding profitably.

Some
new stores may be located in areas where we have little or no meaningful experience or brand recognition. Those areas may have different competitive and market conditions, consumer
tastes and discretionary spending patterns than our existing markets, as well as higher cost of entry, which may cause our new stores to be initially less successful than stores in our existing
markets. In addition, our alternative format stores, such as our Dollar General Market and, to a lesser degree our Dollar General Plus stores, have significantly higher capital costs than our
traditional Dollar General stores, and, as a result, may increase our financial risk if they do not perform as expected.

Many
new stores will be located in areas where we have existing stores. Although we have experience in these areas, increasing the number of locations in these markets may result in
inadvertent oversaturation and temporarily or permanently divert customers and sales from our existing stores, thereby adversely affecting our overall financial performance.

Our profitability may be negatively affected by inventory shrinkage.

We are subject to the risk of inventory loss and theft. We experience significant inventory shrinkage and cannot be sure that
incidences of inventory loss and theft will decrease in the future or that the measures we are taking will effectively reduce the problem of inventory shrinkage. Although some level of inventory
shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased security costs to combat inventory theft, our results of operations
and financial condition could be affected adversely.

The retail business is highly competitive with respect to price, store location, merchandise quality, assortment and presentation,
in-stock consistency, customer service, aggressive promotional activity, customers, and employees. We compete with retailers operating discount, mass merchandise, outlet, warehouse club, grocery,
drug, convenience, variety and other specialty stores. This competitive environment subjects us to the risk of adverse impact to our financial performance because of the lower prices, and thus the
lower margins, required to maintain our competitive position. Also, companies like ours, due to customer demographics and other factors, may have limited ability to increase prices in response to
increased costs without losing competitive position. This limitation may adversely affect our margins and financial performance. Certain of our competitors have greater financial, distribution,
marketing and other resources than we do and may be able to secure better arrangements with suppliers than we can. If we fail to respond effectively to competitive pressures and changes in the retail
markets, it could adversely affect our financial performance.

Competition
for customers has intensified as competitors have moved into, or increased their presence in, our geographic markets, and we expect this competition to continue to increase.
In addition, some of our large box competitors are or may be developing small box formats, and increasing the pace at which they will open the small box formats, which will produce more competition.
We remain vulnerable to the marketing power and high level of consumer recognition of these larger competitors and to the risk that these competitors or others could venture into our industry in a
significant way.

Our private brands may not maintain broad market acceptance and increase the risks we face.

The sale of private brand items is an important component of our future sales growth and gross profit rate enhancement plans. We have
invested in our development and procurement resources and marketing efforts relating to these private brand offerings. We believe that our success in maintaining broad market acceptance of our private
brands depends on many factors, including pricing, our costs, quality and customer perception. We may not achieve or maintain our expected sales for our private brands. The expansion of our private
brand offerings also subjects us to certain risks, such as: potential product liability risks and mandatory or voluntary product recalls; our ability to successfully protect our proprietary rights and
successfully navigate and avoid claims related to the proprietary rights of third parties; our ability to successfully administer and comply with applicable contractual obligations and regulatory
requirements; and other risks generally encountered by entities that source, sell and market exclusive branded offerings for retail. An increase in sales of our private brands may also adversely
affect sales of our vendors' products, which, in turn, could adversely affect our relationship with certain of our vendors. Any failure to appropriately address some or all of these risks could have a
significant adverse effect on our business, results of operations and financial condition.

A significant disruption to our distribution network, to the capacity of our distribution centers or to the timely receipt of inventory could adversely impact sales or
increase our transportation costs, which would decrease our profits.

We rely on our distribution and transportation network to provide goods to our stores in a timely and cost-effective manner. This
distribution occurs through deliveries to our distribution centers from vendors and then from the distribution centers or direct-ship vendors to our stores by various means of transportation,
including shipments by sea and truck. Any disruption, unanticipated expense or operational failure related to this process could affect store operations negatively. For example, unexpected delivery
delays or increases in transportation costs (including through increased fuel costs, a decrease in transportation capacity for overseas shipments, or work stoppages or slowdowns) could significantly
decrease our ability to make sales and earn profits. Labor shortages or work stoppages in

12

the
transportation industry or long-term disruptions to the national and international transportation infrastructure that lead to delays or interruptions of deliveries or which would necessitate our
securing alternative labor or shipping suppliers could also increase our costs or otherwise negatively affect our business.

We
maintain a network of distribution facilities and have plans to build new facilities to support our growth objectives. Delays in opening distribution centers could adversely affect
our future financial performance by slowing store growth, which may in turn reduce revenue growth, or by increasing transportation costs. In addition, distribution-related construction or expansion
projects entail risks that could cause delays and cost overruns, such as: shortages of materials or skilled labor; work stoppages; unforeseen construction, scheduling, engineering, environmental or
geological problems; weather interference; fires or other casualty losses; and unanticipated cost increases. The completion date and ultimate cost of these projects could differ significantly from
initial expectations due to construction-related or other reasons. We cannot guarantee that any project will be completed on time or within established budgets.

The products we sell are sourced from a wide variety of domestic and international suppliers, and we are dependent on our vendors to
supply merchandise in a timely and efficient manner. In 2013, our largest supplier accounted for 8% of our purchases, and our next largest supplier accounted for approximately 7% of such purchases. We
have not experienced any difficulty in obtaining sufficient quantities of core merchandise and believe that, if one or more of our current sources of supply became unavailable, we would generally be
able to obtain alternative sources without experiencing a substantial disruption of our business. However, such alternative sources could increase our merchandise costs and reduce the quality of our
merchandise, and an inability to obtain alternative sources could adversely affect our sales. Additionally, if a supplier fails to deliver on its commitments, whether due to financial difficulties or
other reasons, we could experience merchandise out-of-stocks that could lead to lost sales and damage to our reputation.

We
directly imported approximately 6% of our purchases (measured at cost) in 2013, but many of our domestic vendors directly import their products or components of their products.
Changes to the prices and flow of these goods for any reason, such as political and economic instability in the countries in which foreign suppliers are located, the financial instability of
suppliers, suppliers' failure to meet our standards, issues with labor practices of our suppliers or labor problems they may experience (such as strikes, stoppages or slowdowns, which could also
increase labor costs during and following the disruption), the availability and cost of raw materials to suppliers, increased import duties, merchandise quality or safety issues, currency exchange
rates, transport availability and cost, transport security, inflation, and other factors relating to the suppliers and the countries in which they are located or from which they import, are beyond our
control and could adversely affect our operations and profitability. Because a substantial amount of our imported merchandise comes from China, a change in the Chinese currency or other policies could
negatively impact our merchandise costs. In addition, the United States' foreign trade policies, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the
limitation on the importation of certain types of goods or of goods containing certain materials from other countries and other factors relating to foreign trade are beyond our control. These and
other factors affecting our suppliers and our access to products could adversely affect our business and financial performance. As we increase our imports of merchandise from foreign vendors, the
risks associated with foreign imports will increase.

Despite our best efforts to ensure the quality and safety of the products we sell, we may be subject to product liability claims from
customers or actions required or penalties assessed by government agencies relating to products, including but not limited to food products that are recalled, defective or otherwise alleged to be
harmful. Such claims may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or
residues introduced during the growing, storage, handling and transportation phases. All of our vendors and their products must comply with applicable product and food safety laws, and we are
dependent on them to ensure that the products we buy comply with all safety standards. We generally seek contractual indemnification and insurance coverage from our suppliers. However, if we do not
have adequate contractual indemnification or insurance available, such claims could have a material adverse effect on our business, financial condition and results of operations. Our ability to obtain
indemnification from foreign suppliers may be hindered by the manufacturers' lack of understanding of U.S. product liability or other laws, which may result in our having to respond to claims or
complaints from customers as if we were the manufacturer. Even with adequate insurance and indemnification, such claims could significantly damage our reputation and consumer confidence in our
products. Our litigation expenses could increase as well, which also could have a materially negative impact on our results of operations even if a product liability claim is unsuccessful or is not
fully pursued.

We are subject to governmental regulations, procedures and requirements. A significant change in, or noncompliance with, these regulations could have a material adverse
effect on our financial performance.

Our business is subject to numerous and increasing federal, state and local laws and regulations. We routinely incur significant costs
in complying with these regulations. The complexity of the regulatory environment in which we operate and the related cost of compliance are increasing due to expanding and additional legal and
regulatory requirements and increased enforcement efforts. New laws or regulations, particularly those dealing with healthcare reform, product safety, and labor and employment, among others, or
changes in existing laws and regulations, particularly those governing the sale of products, may result in significant added expenses or may require extensive system and operating changes that may be
difficult to implement and/or could materially increase our cost of doing business. Untimely compliance or noncompliance with applicable regulations or untimely or incomplete execution of a required
product recall can result in the imposition of penalties, including loss of licenses or significant fines or monetary penalties, class action litigation or other litigation, in addition to
reputational damage. Additionally, changes in tax laws, the
interpretation of existing laws, or our failure to sustain our reporting positions on examination could adversely affect our effective tax rate.

Our business is subject to the risk of litigation by employees, consumers, suppliers, competitors, shareholders, government agencies
and others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The number of employment-related class actions filed each year has continued to
increase, and recent changes and proposed changes in Federal and state laws, regulations and agency guidance may cause claims to rise even more. The outcome of litigation, particularly class action
lawsuits, regulatory actions and intellectual property claims, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and
the magnitude of the potential loss relating to these lawsuits may remain unknown for substantial periods of time. In addition, certain of these lawsuits, if decided adversely to us or settled by us,
may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to

14

defend
future litigation may be significant. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the
allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, results of operations and financial condition. See Note 8 to the
consolidated financial statements for further details regarding certain of these pending matters.

Natural disasters (whether or not caused by climate change), unusual weather conditions, pandemic outbreaks, terrorist acts, and global political events could disrupt
business and result in lower sales and otherwise adversely affect our financial performance.

The occurrence of one or more natural disasters, such as hurricanes, fires, floods, tornadoes and earthquakes, unusual weather
conditions, pandemic outbreaks, terrorist acts or disruptive global political events, such as civil unrest in countries in which our suppliers are located, or similar disruptions could adversely
affect our business and financial performance. Uncharacteristic or significant weather conditions can affect consumer shopping patterns, which could lead to lost sales or greater than expected
markdowns and adversely affect our short-term results of operations. To the extent these events result in the closure of one or more of our distribution centers, a significant
number of stores, or our corporate headquarters or impact one or more of our key suppliers, our operations and financial performance could be materially adversely affected through an inability to make
deliveries or provide other support functions to our stores and through lost sales. In addition, these events could result in increases in fuel (or other energy) prices or a fuel shortage, delays in
opening new stores, the temporary lack of an adequate work force in a market, the temporary or long-term disruption in the supply of products from some domestic and overseas suppliers, the temporary
disruption in the transport of goods from overseas, delay in the delivery of goods to our distribution centers or stores, the inability of customers to reach or have transportation to our stores
directly affected by such events, the temporary reduction in the availability of products in our stores and disruption of our utility services or to our information systems. These events also can have
indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage.

Material damage or interruptions to our information systems as a result of external factors, staffing shortages or unanticipated challenges or difficulties in maintaining or
updating our existing technology or developing or implementing new technology could have a material adverse effect on our business or results of operations.

We depend on a variety of information technology systems for the efficient functioning of our business. Such systems are subject to
damage or interruption from power outages, computer and telecommunications failures, computer viruses, cybersecurity breaches, natural disasters and human error. Damage or interruption to these
systems may require a significant investment to fix or replace them, and we may suffer interruptions in our operations in the interim and may experience loss or corruption of critical data, which
could have a material adverse effect on our business or results of operations.

We
also rely heavily on our information technology staff. Failure to meet these staffing needs may negatively affect our ability to fulfill our technology initiatives while continuing to
provide maintenance on existing systems. We rely on certain vendors to maintain and periodically upgrade many of these systems so that they can continue to support our business. The software programs
supporting many of our systems were licensed to us by independent software developers. The inability of these developers or us to continue to maintain and upgrade these information systems and
software programs would disrupt or reduce the efficiency of our operations if we were unable to convert to alternate systems in an efficient and timely manner. In addition, costs and potential
problems and interruptions associated

15

with
the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.

Our future growth and performance and positive customer experience depends on our ability to attract, train, retain and motivate
qualified employees, many of whom are in positions with historically high rates of turnover such as field managers and distribution center managers. Our ability to meet our labor needs, while
controlling our labor costs, is subject to many external factors, including competition for and availability of qualified personnel in a given market, unemployment levels within those markets,
prevailing wage rates, minimum wage laws, health and other insurance costs, and changes in employment and labor laws (including changes in the process for our employees to join a union) or other
workplace regulations (including changes in "entitlement" programs such as health insurance and paid leave programs). If we are unable to attract and retain adequate numbers of qualified employees,
our operations, customer service levels and support functions could suffer. To the extent a significant portion of our employee base unionizes, or attempts to unionize, our labor costs could increase.
In addition, recently enacted comprehensive healthcare reform legislation will likely cause our healthcare costs to increase. While the significant costs of the healthcare reform legislation will
occur after 2013 (as many of the changes affecting us took effect January 1, 2014), if at all, due to provisions of the legislation being phased in over time, changes to our healthcare costs
structure could have a significant negative effect on our business. Our ability to pass along labor costs to our customers is constrained by our low price model.

Our success depends on our executive officers and other key personnel. If we lose key personnel or are unable to hire additional qualified personnel, our business may be
harmed.

Our future success depends to a significant degree on the skills, experience and efforts of our executive officers and other key
personnel. The loss of the services of any of our executive officers, particularly Richard W. Dreiling, our Chief Executive Officer, could have a material adverse effect on our operations. Competition
for skilled and experienced management personnel is intense, and our future success will also depend on our ability to attract and retain qualified personnel, and a failure to attract and retain new
qualified personnel could have an adverse effect on our operations. We do not currently maintain key person life insurance policies with respect to our executive officers or key personnel.

Our cash flows from operations may be negatively affected if we are not successful in managing our inventory balances.

Our inventory balance represented approximately 48% of our total assets exclusive of goodwill and other intangible assets as of
January 31, 2014. Efficient inventory management is a key component of our business success and profitability. To be successful, we must maintain
sufficient inventory levels and an appropriate product mix to meet our customers' demands without allowing those levels to increase to such an extent that the costs to store and hold the goods unduly
impacts our financial results or that subjects us to the risk of increased inventory shrinkage. If our buying decisions do not accurately predict customer trends, we inappropriately price products or
our expectations about customer spending levels are inaccurate, we may have to take unanticipated markdowns to dispose of the excess inventory, which also can adversely impact our financial results.
We continue to focus on ways to reduce these risks, but we cannot make assurances that we will be successful in our inventory management. If we are not successful in managing our inventory balances,
our cash flows from operations may be negatively affected.

16

Because our business is seasonal to a certain extent, with the highest volume of net sales during the fourth quarter, adverse events during the fourth quarter could
materially affect our financial statements as a whole.

We generally recognize our highest volume of net sales during the Christmas selling season, which occurs in the fourth quarter of our
fiscal year. In anticipation of this holiday, we purchase substantial amounts of seasonal inventory. Adverse events, such as deteriorating economic conditions, higher unemployment, higher gas prices,
public transportation disruptions, or unanticipated adverse weather could result in lower-than-planned sales during the holiday season. An excess of seasonal merchandise inventory could result if our
net sales during the Christmas selling season fall below seasonal norms or expectations. If our fourth quarter sales results were substantially below expectations, our financial performance and
operating results could be adversely affected by unanticipated markdowns, especially in seasonal merchandise.

Our current insurance program may expose us to unexpected costs and negatively affect our financial performance.

Our insurance coverage reflects deductibles, self-insured retentions, limits of liability and similar provisions that we believe are
prudent based on the dispersion of our operations. However, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure,
such as losses due to acts of war, employee and certain other crime, wage and hour and other employment-related claims, including class actions, and some natural disasters. If we incur these losses
and they are material, our business could suffer. Certain material events may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage
or result in excessive premium increases. To offset negative insurance market trends, we may elect to self-insure, accept higher deductibles or reduce the amount of coverage in response to these
market changes. In addition, we self-insure a significant portion of
expected losses under our workers' compensation, automobile liability, general liability and group health insurance programs. Unanticipated changes in any applicable actuarial assumptions and
management estimates underlying our recorded liabilities for these losses, including expected increases in medical and indemnity costs, could result in materially different expenses than expected
under these programs, which could have a material adverse effect on our results of operations and financial condition. Although we continue to maintain property insurance for catastrophic events at
our store support center and distribution centers, we are effectively self-insured for other property losses. If we experience a greater number of these losses than we anticipate, our financial
performance could be adversely affected.

Any failure to maintain the security of information we hold relating to our customers, employees and vendors, whether as a result of cybersecurity attacks or otherwise,
could expose us to litigation, government enforcement actions and costly response measures, and could seriously disrupt our operations and harm our reputation.

In connection with sales, we transmit confidential credit and debit card information. We also have access to, collect or maintain
private or confidential information regarding our customers, employees and vendors, as well as our business. We have procedures and technology in place to safeguard such data and information. To our
knowledge, computer hackers have been unable to gain access to the information stored in our information systems. However, cyberattacks are rapidly evolving and becoming increasingly sophisticated.
Additionally, under certain circumstances, we may share information with vendors that assist us in conducting our business, as required by law, or with the permission of the individual. While we have
implemented procedures to protect our information and require appropriate controls of our vendors, it is possible that computer hackers and others might compromise our security measures or those of
our technology and other vendors in the future and

17

obtain
the personal information of our customers, employees and vendors that we hold or our business information. A security breach of any kind could expose us to risks of data loss, litigation,
government enforcement actions and costly response measures, and could seriously disrupt our operations. Any resulting negative publicity could significantly harm our reputation which could cause us
to lose market share and have an adverse effect on our business and financial performance.

Deterioration in market conditions or changes in our credit profile could adversely affect our ability to raise additional capital to fund our operations and limit our
ability to pursue our growth strategy or other opportunities or to react to changes in the economy or our industry.

We obtain and manage liquidity from the positive cash flow we generate from our operating activities and our access to capital markets,
including our credit facility. Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase the cost of financing, make it
more difficult to obtain favorable terms, or restrict our access to this source of future liquidity. There is no assurance that our ability to obtain additional financing through the capital markets
will not be adversely impacted by economic conditions. Our debt securities currently have an investment grade rating, and a downgrade of this rating likely would make it more difficult or expensive
for us to obtain additional financing and would increase the cost of borrowing under our credit facility, which could adversely affect our cash flow and limit our growth strategy or other
opportunities or our ability to react to changes in the economy or our industry.

At
January 31, 2014, we had total outstanding debt (including the current portion of long-term obligations) of approximately $2.8 billion. We also had an additional
$822.8 million available for borrowing under our unsecured revolving credit facility. This level of debt could have important negative consequences to our business,
including:



requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest
on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities or repurchase shares of our common stock;



making it more difficult for us to raise additional capital to fund our operations and pursue our growth strategy,
including by limiting our ability to obtain additional financing for working capital, capital expenditures and debt service requirements; and



placing us at a disadvantage compared to our competitors who are less leveraged and may be better able to use their cash
flow to fund competitive responses to changing industry, market or economic conditions.

Our credit facilities and the indenture governing our notes contain various covenants that could limit our ability to engage in
specified types of transactions. These covenants limit our and our subsidiaries' ability to, among other things:



incur indebtedness of subsidiaries;



create certain liens or encumbrances;



merge, consolidate, sell or otherwise dispose of all or substantially all of our assets; and



make any material change in the nature of our business.

We
are also subject to specified financial ratio covenants under our credit facilities. Our ability to meet these financial ratios can be affected by events beyond our control, and we
cannot assure you that we will meet these ratios and other covenants. A breach of any of these covenants could result in a

18

default
under the agreement governing such indebtedness and inability to borrow additional amounts under our revolving credit facility. Upon our failure to maintain compliance with these covenants,
the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit thereunder. If the lenders under such
indebtedness accelerate the repayment of borrowings, we cannot make assurances that we will have
sufficient assets to repay those borrowings, as well as our other indebtedness, including our outstanding notes.

New accounting guidance or changes in the interpretation or application of existing accounting guidance could adversely affect our financial performance.

The implementation of proposed new accounting standards may require extensive systems, internal process and other changes that could
increase our operating costs, and may also result in changes to our financial statements. In particular, the implementation of expected future accounting standards related to leases, as currently
being contemplated by the convergence project between the Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB"), as well as the possible adoption of
international financial reporting standards by U.S. registrants, could require us to make significant changes to our lease management, fixed asset, and other accounting systems, and, if implemented,
are likely to result in significant changes to our financial statements.

U.S.
generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are
relevant to our business involve many subjective assumptions, estimates and judgments by our management. Changes in these rules or their interpretation or changes in underlying assumptions, estimates
or judgments by our management could significantly change our reported or expected financial performance. The outcome of such changes could include litigation or regulatory actions which could have an
adverse effect on our financial condition and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

19

ITEM 2. PROPERTIES

As of February 28, 2014, we operated 11,215 retail stores located in 40 states as follows:

State

Number of
Stores

State

Number of
Stores

Alabama

597

Missouri

398

Arizona

85

Nebraska

80

Arkansas

325

Nevada

22

California

102

New Hampshire

9

Colorado

33

New Jersey

71

Connecticut

15

New Mexico

72

Delaware

36

New York

285

Florida

656

North Carolina

611

Georgia

632

Ohio

608

Illinois

405

Oklahoma

355

Indiana

399

Pennsylvania

489

Iowa

178

South Carolina

425

Kansas

194

South Dakota

11

Kentucky

421

Tennessee

578

Louisiana

461

Texas

1,198

Maryland

92

Utah

8

Massachusetts

10

Vermont

20

Michigan

330

Virginia

307

Minnesota

33

West Virginia

179

Mississippi

369

Wisconsin

116

Most
of our stores are located in leased premises. Individual store leases vary as to their terms, rental provisions and expiration dates. Many stores are subject to build-to-suit
arrangements with landlords,
which typically carry a primary lease term of up to 15 years with multiple renewal options. We also have stores subject to shorter-term leases and many of these leases have renewal options. In
recent years, an increasing percentage of our new stores have been subject to build-to-suit arrangements.

As
of February 28, 2014, we operated twelve distribution centers, as described in the following table:

Location

Year
Opened

Approximate Square
Footage

Approximate Number
of Stores Served

Scottsville, KY

1959

720,000

774

Ardmore, OK

1994

1,310,000

1,380

South Boston, VA

1997

1,250,000

926

Indianola, MS

1998

820,000

803

Fulton, MO

1999

1,150,000

1,256

Alachua, FL

2000

980,000

947

Zanesville, OH

2001

1,170,000

1,173

Jonesville, SC

2005

1,120,000

1,107

Marion, IN

2006

1,110,000

1,174

Bessemer, AL

2012

940,000

1,025

Lebec, CA

2012

600,000

253

Bethel, PA

2014

1,000,000

397

20

We
lease the distribution centers located in California, Oklahoma, Mississippi and Missouri and own the other eight distribution centers in the table above. Approximately 7.25 acres of
the land on which our Kentucky distribution center is located is subject to a ground lease. As of January 31, 2014, we leased approximately 621,000 square feet of additional temporary warehouse
space to support our distribution needs.

Our
executive offices are located in approximately 302,000 square feet of owned buildings and approximately 56,000 square feet of leased office space in Goodlettsville, Tennessee.

ITEM 3. LEGAL PROCEEDINGS

The information contained in Note 8 to the consolidated financial statements under the heading "Legal proceedings" contained in
Part II, Item 8 of this report is incorporated herein by this reference.

ITEM 4. MINE SAFETY DISCLOSURES

None.

21

EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding our current executive officers as of March 20, 2014 is set forth below. Each of our executive officers
serves at the discretion of our Board of Directors and is elected annually by the Board to serve until a successor is duly elected. There are no familial relationships between any of our directors or
executive officers.

Name

Age

Position

Richard W. Dreiling

60

Chairman and Chief Executive Officer

Todd J. Vasos

52

Chief Operating Officer

David M. Tehle

57

Executive Vice President and Chief Financial Officer

David D'Arezzo

55

Executive Vice President and Chief Merchandising Officer

John W. Flanigan

62

Executive Vice President, Global Supply Chain

Robert D. Ravener

55

Executive Vice President and Chief People Officer

Gregory A. Sparks

53

Executive Vice President, Store Operations

Anita C. Elliott

49

Senior Vice President and Controller

Rhonda M. Taylor

46

Senior Vice President and General Counsel

Mr. Dreiling joined Dollar General in January 2008 as Chief Executive Officer and a member of our Board. He was appointed Chairman
of the Board on December 2, 2008. Prior to joining Dollar General, Mr. Dreiling served as Chief Executive Officer, President and a director of Duane Reade Holdings, Inc. and Duane
Reade Inc., the largest drugstore chain in New York City, from November 2005 until January 2008 and as Chairman of the Board of Duane Reade from March 2007 until January 2008. Prior to that,
Mr. Dreiling, beginning in March 2005, served as Executive Vice PresidentChief Operating Officer of Longs Drug Stores Corporation, an operator of a chain of retail drug stores on
the West Coast and Hawaii, after having joined Longs in July 2003 as Executive Vice President and Chief Operations Officer. From 2000 to 2003, Mr. Dreiling served as Executive Vice
PresidentMarketing, Manufacturing and Distribution at Safeway Inc., a food and drug retailer. Prior to that, Mr. Dreiling served from 1998 to 2000 as President of Vons, a
Southern California food and drug division of Safeway. He currently serves as the Chairman of the Retail Industry Leaders Association (RILA). Mr. Dreiling is a director of Lowe's
Companies, Inc.

Mr. Vasos joined Dollar General in December 2008 as Executive Vice President, Division President and Chief Merchandising Officer.
He was promoted to Chief Operating Officer in November 2013. Prior to joining Dollar General, Mr. Vasos served in executive positions with Longs Drug Stores Corporation for 7 years,
including Executive Vice President and Chief Operating Officer (February 2008 through November 2008) and Senior Vice President and Chief Merchandising Officer (2001 - 2008), where he was
responsible for all pharmacy and front-end marketing, merchandising, procurement, supply chain, advertising, store development, store layout and space allocation, and the operation of three
distribution centers. He also previously served in leadership positions at Phar-Mor Food and Drug Inc. and Eckerd Corporation.

Mr. Tehle joined Dollar General in June 2004 as Executive Vice President and Chief Financial Officer. He served from 1997 to June
2004 as Executive Vice President and Chief Financial Officer of Haggar Corporation, a manufacturing, marketing and retail corporation. From 1996 to 1997, he was Vice President of Finance for a
division of The Stanley Works, one of the world's largest manufacturers of tools, and from 1993 to 1996, he was Vice President and Chief Financial Officer of Hat Brands, Inc., a hat
manufacturer. Earlier in his career, Mr. Tehle served in a variety of financial-related roles at Ryder System, Inc. and Texas Instruments Incorporated. Mr. Tehle is a director of
Jack in the Box Inc.

Mr. D'Arezzo joined Dollar General in November 2013 as Executive Vice President and Chief Merchandising Officer. Prior to Dollar
General, from May 2008 until August 2013, Mr. D'Arezzo served as Executive Vice President and Chief Operating Officer of Grocers Supply Co., Inc., the largest

22

independent
wholesaler in the southern United States, serving over 800 supermarkets with a full-line of products for resale. In this role, he was responsible for all functions and the running of the
wholesale business. From 2006 to 2008, he served as Senior Vice President and Chief Marketing Officer of Duane Reade, Inc., the largest drugstore chain in New York City, and as its Interim
Chief Executive Officer for four months in 2008. Prior to Duane Reade, he served as Chief Operating Officer of Raley's Family of Stores, Northern California's premier supermarket operating 120 stores
in three western states, from 2003 to 2005. From 2002 to 2003, he served as Executive Vice President of Merchandising and Replenishment at Office Depot, Inc., a global supplier of office
products and services. From 1994 to 2002, Mr. D'Arezzo held various positions at Wegmans Food Market, a supermarket operator, including Senior Vice President of Merchandising
(1998 - 2002), Division Manager (1997) and Group Manager (1994 - 1996). He worked as Vice President of Sales at DNA Plant Technology, a biotechnology start-up company, in
1994. He also held various positions at PepsiCo, Inc. from 1989 to 1993, including Business Development Manager, Area Marketing Manager, Brand ManagerDiet Pepsi and New Products
Assistant Marketing Manager.

Mr. Flanigan joined Dollar General as Senior Vice President, Global Supply Chain in May 2008. He was promoted to Executive Vice
President in March 2010. He has over 25 years of management experience in retail logistics. Prior to joining Dollar General, he was Group Vice President of Logistics and Distribution for Longs
Drug Stores Corporation, an operator of a chain of retail drug stores on the West Coast and Hawaii, from October 2005 to April 2008. In this role, he was responsible for overseeing warehousing,
inbound and outbound transportation and facility maintenance to service over 500 retail outlets. From September 2001 to October 2005, he served as the Vice President of Logistics for
Safeway Inc., a food and drug retailer, where he oversaw distribution of food products from Safeway distribution centers to all retail outlets, inbound traffic and transportation. He also has
held distribution and logistics leadership positions at Vonsa Safeway company, Specialized Distribution Management Inc., and Crum & Crum Logistics.

Mr. Ravener joined Dollar General as Senior Vice President and Chief People Officer in August 2008. He was promoted to Executive
Vice President in March 2010. Prior to joining Dollar General, he served in human resources executive roles with Starbucks Corporation, a roaster, marketer and retailer of specialty coffee, from
September 2005 until August 2008 as the Senior Vice President of U.S. Partner Resources and, prior to that, as the Vice President, Partner ResourcesEastern Division. As the Senior Vice
President of U.S. Partner Resources at Starbucks, Mr. Ravener oversaw all aspects of human resources activity for more than 10,000 stores. Prior to serving at Starbucks, Mr. Ravener held
Vice President of Human Resources roles for The Home Depot Inc., a home improvement retailer, at its Store Support Center and a domestic field division from April 2003 to September 2005.
Mr. Ravener also served in executive roles in both human resources and operations at Footstar, Inc. and roles of increasing leadership at PepsiCo, Inc.

Mr. Sparks joined Dollar General in March 2012 as Executive Vice President of Store Operations. Prior to joining Dollar General,
Mr. Sparks served as Division President, Seattle Division, for Safeway Inc., a
food and drug retailer, a role he had held since 2001. As Division President of the Seattle Division, Mr. Sparks was responsible for the supervision of approximately 200 stores and
approximately 23,000 employees in the northwest region and oversaw real estate, finance and operations of the Seattle Division. Mr. Sparks has 37 years of retail experience including a
34-year career with Safeway where he held roles of increasing responsibility including merchandising manager (1987), category manager (1987 - 1990), divisional director of merchandising,
grocery and general merchandise (1990 - 1997) and divisional vice president of marketing (1997 - 2001).

Ms. Elliott joined Dollar General as Senior Vice President and Controller in August 2005. Prior to joining Dollar General, she
served as Vice President and Controller of Big Lots, Inc., a closeout retailer, from May 2001 to August 2005. Overseeing a staff of 140 employees at Big Lots, she was responsible for accounting
operations, financial reporting and internal audit. Prior to serving at Big

23

Lots,
she served as Vice President and Controller for Jitney-Jungle Stores of America, Inc., a grocery retailer, from April 1998 to March 2001. At Jitney-Jungle, Ms. Elliott was
responsible for the accounting operations and the internal and external financial reporting functions. Prior to serving at Jitney-Jungle, she practiced public accounting for 12 years, 6 of
which were with Ernst & Young LLP.

Ms. Taylor joined Dollar General as an Employment Attorney in March 2000 and was promoted to Senior Employment Attorney in 2001.
She was promoted to Deputy General Counsel in 2004 and then moved into the role of Vice President and Assistant General Counsel in March 2010. She has served as Senior Vice President and General
Counsel since June 2013. Prior to joining Dollar General, she practiced law with Ogletree, Deakins, Nash, Smoak & Stewart, P.C., where she specialized in labor law and employment litigation.
She has also held attorney positions with Ford & Harrison LLP and Stokes & Bartholomew.

Our common stock is traded on the New York Stock Exchange under the symbol "DG." The high and low sales prices during each quarter in
fiscal 2013 and 2012 were as follows:

2013

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

High

$

53.00

$

55.82

$

59.87

$

62.93

Low

$

43.35

$

48.61

$

52.40

$

55.08

2012

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

High

$

48.76

$

56.04

$

53.36

$

50.80

Low

$

41.20

$

45.37

$

45.58

$

39.73

On
March 13, 2014, our stock price at the close of the market was $57.66 and there were approximately 1,760 shareholders of record of our common stock.

Dividends

We have not declared or paid recurring dividends subsequent to a merger transaction in 2007. Any decision to declare and pay dividends
in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual
restrictions and other factors that our Board of Directors may deem relevant.

Issuer Purchases of Equity Securities

The following table contains information regarding purchases of our common stock made during the quarter ended January 31, 2014
by or on behalf of Dollar General or any "affiliated purchaser," as defined by Rule 10b-18(a)(3) of the Securities Exchange Act of 1934:

Period

Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number
of Shares Purchased
as Part of Publicly
Announced Plans or
Programs(a)

Approximate
Dollar Value
of Shares that May
Yet Be Purchased
Under the Plans
or Programs(a)

11/02/13 - 11/30/13



$





$

223,591,000

12/01/13 - 12/31/13

3,280,900

$

60.98

3,280,900

$

1,023,513,000

01/01/14 - 01/31/14



$





$

1,023,513,000

Total

3,280,900

$

60.98

3,280,900

$

1,023,513,000

(a)

A
$500 million share repurchase program was publicly announced on September 5, 2012, and increases in the authorization under such program
were announced on March 25, 2013 ($500 million increase) and December 5, 2013 ($1.0 billion increase). Under the authorization, purchases may be made in the open market or
in privately negotiated transactions from time to time subject to market and other conditions. This repurchase authorization has no expiration date.

25

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial information of Dollar General Corporation as of the dates and for the
periods indicated. The selected historical statement of operations data and statement of cash flows data for the fiscal years ended January 31, 2014, February 1, 2013, and
February 3, 2012 and balance sheet data as of January 31, 2014 and February 1, 2013, have been derived from our historical audited consolidated financial statements included
elsewhere in this report. The selected historical statement of operations data and statement of cash flows data for the fiscal years ended January 28, 2011 and January 29, 2010 and
balance sheet data as of February 3, 2012, January 28, 2011, and January 29, 2010 presented in this table have been derived from audited consolidated financial statements not
included in this report.

The
information set forth below should be read in conjunction with, and is qualified by reference to, the Consolidated Financial Statements and related notes included in Part II,
Item 8 of this report

26

and
the Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of this report.

Year Ended

(Amounts in millions, excluding per share data,
number of stores, selling square feet, and net sales
per square foot)

January 31,
2014

February 1,
2013

February 3,
2012(1)

January 28,
2011

January 29,
2010

Statement of Operations Data:

Net sales

$

17,504.2

$

16,022.1

$

14,807.2

$

13,035.0

$

11,796.4

Cost of goods sold

12,068.4

10,936.7

10,109.3

8,858.4

8,106.5

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Gross profit

5,435.7

5,085.4

4,697.9

4,176.6

3,689.9

Selling, general and administrative expenses

3,699.6

3,430.1

3,207.1

2,902.5

2,736.6

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Operating profit

1,736.2

1,655.3

1,490.8

1,274.1

953.3

Interest expense

89.0

127.9

204.9

274.0

345.6

Other (income) expense

18.9

30.0

60.6

15.1

55.5

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Income before income taxes

1,628.3

1,497.4

1,225.3

985.0

552.1

Income tax expense

603.2

544.7

458.6

357.1

212.7

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net income

$

1,025.1

$

952.7

$

766.7

$

627.9

$

339.4

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Earnings per sharebasic

$

3.17

$

2.87

$

2.25

$

1.84

$

1.05

Earnings per sharediluted

3.17

2.85

2.22

1.82

1.04

Dividends per share









0.7525

Statement of Cash Flows Data:

Net cash provided by (used in):

Operating activities

$

1,213.1

$

1,131.4

$

1,050.5

$

824.7

$

672.8

Investing activities

(250.0

)

(569.8

)

(513.8

)

(418.9

)

(248.0

)

Financing activities

(598.3

)

(546.8

)

(908.0

)

(130.4

)

(580.7

)

Total capital expenditures

(538.4

)

(571.6

)

(514.9

)

(420.4

)

(250.7

)

Other Financial and Operating Data:

Same store sales growth(2)

3.3

%

4.7

%

6.0

%

4.9

%

9.5

%

Same store sales(2)

$

16,365.5

$

14,992.7

$

13,626.7

$

12,227.1

$

11,356.5

Number of stores included in same store sales calculation

10,387

9,783

9,254

8,712

8,324

Number of stores (at period end)

11,132

10,506

9,937

9,372

8,828

Selling square feet (in thousands at period end)

82,012

76,909

71,774

67,094

62,494

Net sales per square foot(3)

$

220

$

216

$

213

$

201

$

195

Consumables sales

75.2

%

73.9

%

73.2

%

71.6

%

70.8

%

Seasonal sales

12.9

%

13.6

%

13.8

%

14.5

%

14.5

%

Home products sales

6.4

%

6.6

%

6.8

%

7.0

%

7.4

%

Apparel sales

5.5

%

5.9

%

6.2

%

6.9

%

7.3

%

Rent expense

$

686.9

$

614.3

$

542.3

$

489.3

$

428.6

Balance Sheet Data (at period end):

Cash and cash equivalents and short-term investments

$

505.6

$

140.8

$

126.1

$

497.4

$

222.1

Total assets

10,867.5

10,367.7

9,688.5

9,546.2

8,863.5

Long-term debt

2,818.8

2,772.2

2,618.5

3,288.2

3,403.4

Total shareholders' equity

5,402.2

4,985.3

4,674.6

4,063.6

3,408.8

(1)

The
fiscal year ended February 3, 2012 was comprised of 53 weeks.

27

(2)

Same-store
sales are calculated based upon stores that were open at least 13 full fiscal months and remain open at the end of the reporting period. We
include stores that have been remodeled, expanded or relocated in our same-store sales calculation. When applicable, we exclude the sales in the non-comparable week of a 53-week year from the
same-store sales calculation.

(3)

Net
sales per square foot was calculated based on total sales for the preceding 12 months as of the ending date of the reporting period divided by
the average selling square footage during the period, including the end of the fiscal year, the beginning of the fiscal year, and the end of each of our three interim fiscal quarters.

Year Ended

January 31,
2014

February 1,
2013

February 3,
2012

January 28,
2011

January 29,
2010

Ratio of earnings to fixed charges(1):

4.7x

4.7x

3.8x

3.1x

2.1x

(1)

For
purposes of computing the ratio of earnings to fixed charges, (a) earnings consist of income (loss) before income taxes, plus fixed charges less
capitalized expenses related to indebtedness (amortization expense for capitalized interest is not significant) and (b) fixed charges consist of interest expense (whether expensed or
capitalized), the amortization of debt issuance costs and discounts related to indebtedness, and the interest portion of rent expense.

28

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read with, and is qualified in its entirety by, the Consolidated
Financial Statements and the notes thereto. It also should be read in conjunction with the Cautionary Disclosure Regarding Forward-Looking Statements and the Risk Factors disclosures set forth in the
Introduction and in Item 1A of this report, respectively.

Executive Overview

We are the largest discount retailer in the United States by number of stores, with 11,215 stores located in 40 states as of
February 28, 2014, primarily in the southern, southwestern, midwestern and eastern United States. We offer a broad selection of merchandise, including consumable products such as food, paper
and cleaning products, health and beauty products and pet supplies, and non-consumable products such as seasonal merchandise, home decor and domestics, and basic apparel. In 2013, we began selling
tobacco products in our stores, with very favorable response from our customers. Our merchandise includes high quality national brands from leading manufacturers, as well as comparable quality private
brand selections with prices at substantial discounts to national brands. We offer our customers these national brand and private brand products at everyday low prices (typically $10 or less) in our
convenient small-box (small store) locations.

The
customers we serve are value-conscious, many with low or fixed incomes, and Dollar General has always been intensely focused on helping them make the most of their spending dollars.
We believe our convenient store format and broad selection of high quality products at compelling values have driven our substantial growth and financial success over the years. Like other companies,
we have been operating for several years in an environment with ongoing macroeconomic challenges and uncertainties. Our customers are facing sustained high rates of unemployment or underemployment,
fluctuating food, gasoline and energy costs, rising and uncertain medical costs, including concerns over
government mandated participation in health insurance programs, reductions in government benefits programs, continued challenges with affordable housing and consumer credit, and the timetable and
strength of economic recovery for our core customers remains uncertain. The longer our customers have to manage under such difficult conditions, the more difficult it is for them to stretch their
spending dollars, particularly for discretionary purchases.

Our
first priority is driving productive sales growth, including by increasing shopper frequency, item unit sales and transaction amount. In 2013, sales in same-stores increased by 3.3%
over 2012 levels due to increases in both traffic and average transaction. Successful sales growth initiatives in 2013 included the addition of tobacco products; the expansion of the number of coolers
for refrigerated and frozen foods and beverages in over 1,600 existing stores; the optimization of shelf space, including the reduction of hanging apparel in many of our smaller stores; and the impact
of 582 remodeled and relocated stores during the year. Inflation had a very modest impact on our sales in 2013 and 2012. In addition to same-store sales growth, we opened 650 new stores.

Our
second priority is to increase, or enhance, our gross profit rate. However, in early 2013, we made a strategic decision to add tobacco products in our stores with the primary goal of
increasing customer traffic. The addition of tobacco products and the increased proportion of sales of perishables, largely resulting from our continued expansion of coolers in the stores, both led to
a decrease in our overall gross profit rate in 2013. We believe that both of these merchandise classes are significant drivers of customer traffic that should lead to increases to average purchase
amount. We expect the

29

improvement
in our net sales from these initiatives will outweigh the corresponding reduction in our gross profit rate. In addition, we have ongoing efforts to reduce product costs including effective
category management, utilization of private brands, shrink reduction, distribution and transportation efficiencies and additional improvements to our pricing and markdown business model, among others,
while remaining committed to our everyday low price strategy. In our consumables category, we strive to offer the optimal balance of the most popular nationally advertised brands and our own private
brands, which generally have higher gross profit rates than national brands. We believe that our core customer is continuing to seek out and purchase goods at entry level price points and are doing so
with greater frequency. Commodities cost inflation was minimal in 2013 and, in some instances, we experienced a decrease in such costs. Accordingly, overall price increases passed through to our
customers were minimal. We remain committed to our seasonal, home, and apparel categories, and although consumables sales trends are weaker than we would like, we expect the growth of
consumables to continue to outpace the non-consumables categories again in 2014 due to the anticipated continued economic pressures discussed above.

Our
third priority is leveraging process improvements and information technology to reduce costs. We are committed as an organization to reduce costs, particularly selling, general and
administrative expenses ("SG&A") that do not affect the customer experience. In 2013, the most significant decrease in SG&A as a percentage of sales as compared to 2012 resulted from our failure to
reach our 2013 threshold financial performance level required under our annual cash incentive compensation program, which would have reduced cash incentive compensation for eligible employees to zero.
However, the Company will pay a nominal discretionary amount to members of this group who are not Company officers. In addition, we again successfully lowered our store labor costs as a percentage of
sales, in part, by simplifying various tasks performed in the stores. Going forward, we will continue to simplify or eliminate unnecessary work in our stores and elsewhere in the company and believe
we have additional opportunities to reduce costs through our focused procurement efforts. Certain costs, such as new legislation and regulations related to health care insurance requirements, present
a unique challenge to our ability to leverage expenses. Because of the significance of the reduction in incentive compensation in 2013, compliance with certain provisions of the Affordable Care Act in
2014, and an increase in 2014 store occupancy costs resulting from the recent completion of a sale-leaseback transaction, we expect overall SG&A to be a higher percentage of sales in 2014 than in
2013.

Our
fourth priority is to strengthen and expand Dollar General's culture of serving others. For customers this means helping them "Save time. Save money. Every day!" by providing clean,
well-stocked stores with quality products at low prices. For employees, this means creating an environment that attracts and retains key employees throughout the organization. For the public, this
means giving back to our store communities through our charitable and other efforts. For shareholders, this means meeting their expectations of an efficiently and profitably run organization that
operates with compassion and integrity.

Although
we did not meet all of our financial goals in 2013, our continued focus on these four priorities, coupled with strong cash flow management and share repurchases, resulted in
solid overall operating and financial performance in 2013 as compared to 2012 as follows. Basis points, as referred to below, are equal to 0.01 percent of total sales.



Total sales in 2013 increased 9.2% over 2012. Sales in same-stores increased 3.3%, with increases in both customer traffic
and average transaction amount. Consumables represented 75% of sales in 2013 and drove 89% of the total increase. Departments with the most significant increases were tobacco, perishables and candy
and snacks. Average sales per square foot in 2013 were $220, up from $216 in 2012.



Operating profit increased 4.9% to $1.74 billion, or 9.9% of sales, compared to $1.66 billion, or 10.3% of
sales in 2012. The decrease in our operating profit rate was attributable to a 69 basis-point decrease in our gross profit rate, partially offset by a 27 basis-point reduction of SG&A.

The reduction in SG&A, as a percentage of sales, was due primarily to a significant decrease in incentive compensation
expense and efficiencies relating to store labor costs. For other factors, see the detailed discussion that follows.



Interest expense decreased by $38.9 million in 2013 to $89.0 million, reflecting lower average borrowing
rates which primarily resulted from the completion of our refinancing in the first quarter of 2013. Total long-term obligations as of January 31, 2014 were $2.82 billion.



We reported net income of $1.03 billion, or $3.17 per diluted share, for fiscal 2013, compared to net income of
$952.7 million, or $2.85 per diluted share, for fiscal 2012.



We generated approximately $1.21 billion of cash flows from operating activities in 2013, an increase of 7.2%
compared to 2012. We primarily utilized our cash flows from operating activities to invest in the growth of our business and repurchase our common stock.



During 2013 we opened 650 new stores, remodeled or relocated 582 stores, and closed 24 stores.

Also
in 2013, we repurchased approximately 11.0 million shares of our outstanding common stock for $620.1 million, and we sold and leased back 233 of our stores, generating
cash proceeds of $281.6 million and resulting in a deferred gain of $67.2 million that will be recognized over a period of 15 years.

In
2014, we plan to continue to focus on our four key operating priorities. We expect our sales growth in 2014 to again be driven by consumables as our customer continues to face both
continuing and new economic challenges. We plan to focus our efforts on effectively serving our core customers' needs by providing them with the selections they want at the right price points in 2014.

We
made progress in 2013 on implementing an improved supply chain solution to assist in promotional and core inventory forecasting and ordering. We expect to make further progress in
2014, and eventually all of our SKUs will be managed through this solution. The supply chain solution is helping us improve our ordering processes in the stores and has contributed to our work
simplification efforts and improvements in maintaining efficient inventory levels. We believe we have additional opportunities for work simplification and elimination in 2014.

We
are pleased with the performance of our 2013 new stores, remodels and relocations, and in 2014 we plan to open 700 new stores and to continue our ongoing remodel and relocation
efforts.

Finally,
we plan to continue to repurchase shares of our common stock in 2014.

Key Financial Metrics. We have identified the following as our most critical financial metrics:



Same-store sales growth;



Sales per square foot;



Gross profit, as a percentage of sales;



Selling, general and administrative expenses, as a percentage of sales;



Operating profit;



Cash flow;



Net income;

31



Earnings per share;



Earnings before interest, income taxes, depreciation and amortization;



Return on invested capital; and



Adjusted debt to Earnings before interest, income taxes, depreciation and amortization and rent expense.

Readers
should refer to the detailed discussion of our operating results below for additional comments on financial performance in the current year periods as compared with the prior
year periods.

Results of Operations

Accounting Periods. The following text contains references to years 2013, 2012, and 2011, which represent fiscal years ended
January 31, 2014,
February 1, 2013, and February 3, 2012, respectively. Our fiscal year ends on the Friday closest to January 31. Fiscal years 2013 and 2012 were 52-week accounting periods and
fiscal year 2011 was a 53-week accounting period.

Seasonality. The nature of our business is seasonal to a certain extent. Primarily because of sales of holiday-related merchandise,
sales in our
fourth quarter (November, December and January) have historically been higher than sales achieved in each of the first three quarters of the fiscal year. Expenses, and to a greater extent operating
profit, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect
comparisons between periods.

32

The
following table contains results of operations data for fiscal years 2013, 2012 and 2011, and the dollar and percentage variances among those years.

2013 vs. 2012

2012 vs. 2011

(amounts in millions, except per share amounts)

2013

2012

2011

Amount
Change

% Change

Amount
Change

% Change

Net sales by category:

Consumables

$

13,161.8

$

11,844.8

$

10,833.7

$

1,317.0

11.1

%

$

1,011.1

9.3

%

% of net sales

75.19

%

73.93

%

73.17

%

Seasonal

2,259.5

2,172.4

2,051.1

87.1

4.0

121.3

5.9

% of net sales

12.91

%

13.56

%

13.85

%

Home products

1,115.6

1,061.6

1,005.2

54.1

5.1

56.4

5.6

% of net sales

6.37

%

6.63

%

6.79

%

Apparel

967.2

943.3

917.1

23.9

2.5

26.2

2.9

% of net sales

5.53

%

5.89

%

6.19

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net sales

$

17,504.2

$

16,022.1

$

14,807.2

$

1,482.0

9.2

%

$

1,214.9

8.2

%

Cost of goods sold

12,068.4

10,936.7

10,109.3

1,131.7

10.3

827.4

8.2

% of net sales

68.95

%

68.26

%

68.27

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Gross profit

5,435.7

5,085.4

4,697.9

350.3

6.9

387.5

8.2

% of net sales

31.05

%

31.74

%

31.73

%

Selling, general and administrative expenses

3,699.6

3,430.1

3,207.1

269.4

7.9

223.0

7.0

% of net sales

21.14

%

21.41

%

21.66

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Operating profit

1,736.2

1,655.3

1,490.8

80.9

4.9

164.5

11.0

% of net sales

9.92

%

10.33

%

10.07

%

Interest expense

89.0

127.9

204.9

(38.9

)

(30.4

)

(77.0

)

(37.6

)

% of net sales

0.51

%

0.80

%

1.38

%

Other (income) expense

18.9

30.0

60.6

(11.1

)

(37.0

)

(30.7

)

(50.6

)

% of net sales

0.11

%

0.19

%

0.41

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Income before income taxes

1,628.3

1,497.4

1,225.3

130.9

8.7

272.1

22.2

% of net sales

9.30

%

9.35

%

8.27

%

Income taxes

603.2

544.7

458.6

58.5

10.7

86.1

18.8

% of net sales

3.45

%

3.40

%

3.10

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net income

$

1,025.1

$

952.7

$

766.7

$

72.5

7.6

%

$

186.0

24.3

%

% of net sales

5.86

%

5.95

%

5.18

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Diluted earnings per share

$

3.17

$

2.85

$

2.22

$

0.32

11.2

%

$

0.63

28.4

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Net Sales. The net sales increase in 2013 reflects a same-store sales increase of 3.3% compared to 2012. For 2013, there were 10,387
same-stores
which accounted for sales of $16.37 billion. Same-stores include stores that have been open for at least 13 months and remain open at the end of the reporting period. Changes in
same-store sales are calculated based on the comparable calendar weeks in the prior year, and include stores that have been remodeled, expanded or relocated.. The remainder of the increase in sales in
2013 was attributable to new stores, partially offset by sales from closed stores. The increase in sales reflects increased customer traffic and average transaction amounts. Increases in sales of
consumables outpaced our non-consumables, with sales of tobacco products, perishables, and candy

33

and
snacks contributing the majority of the increase. Tobacco was added in the stores primarily during the first and second quarters. The expansion of coolers for perishables in over 1,600 existing
stores was completed in the first half of the year while other initiatives, including space optimization in many of our smaller stores, were implemented throughout the year.

The
net sales increase in 2012 reflects a same-store sales increase of 4.7% compared to 2011. For 2012, there were 9,783 same-stores which accounted for sales of $14.99 billion.
The remainder of the increase in sales in 2012 was attributable to new stores, partially offset by sales from closed stores. The increase in sales reflects increased customer traffic and average
transaction amounts, as a result of the refinement of our merchandise offerings, improvements in our category management processes and store standards, and increased utilization of square footage in
our stores. Increases in sales of consumables outpaced our non-consumables, with sales of snacks, candy, beverages and perishables contributing the majority of the increase throughout the year.

Of
our four major merchandise categories, the consumables category, which generally has a lower gross profit rate than the other three categories, has grown most significantly over the
past several years.
Because of the impact of sales mix on gross profit, we continually review our merchandise mix and strive to adjust it when appropriate.

Gross Profit. The gross profit rate as a percentage of sales was 31.1% in 2013 compared to 31.7% in 2012. Gross profit increased by
6.9% in 2013, and
as a percentage of sales, decreased by 69 basis points. The majority of the gross profit rate decrease in 2013 as compared to 2012 was due to consumables comprising a larger portion of our net sales,
primarily as the result of increased sales of lower margin consumables including tobacco products and expanded perishables offerings, all of which contributed to lower initial inventory markups. In
addition, we experienced a higher inventory shrinkage rate, partially attributable to the addition of certain consumable products with relatively higher retail prices. These factors were partially
offset by a reduction in net purchase costs on certain products. The Company recorded a LIFO benefit of $11.0 million in 2013 compared to a LIFO provision of $1.4 million in 2012.

The
gross profit rate as a percentage of sales was 31.7% in both 2012 and 2011. Factors favorably impacting our gross profit rate include a significantly lower LIFO provision, higher
inventory markups, and improved transportation efficiencies due in part to a decrease in average miles per delivery enabled by our new distribution centers and other logistics initiatives. These
positive factors were offset by higher markdowns, a reduction in price increases and a modest increase in our inventory shrinkage rate compared to 2011. In addition, consumables, which generally have
lower markups than non-consumables, represented a greater percentage of sales in 2012 than in 2011. We recorded a LIFO provision of $1.4 million in 2012 compared to a $47.7 million
provision in 2011, primarily as a result of lower inflation on commodities.

SG&A Expense. SG&A expense was 21.1% as a percentage of sales in 2013 compared to 21.4% in 2012, an improvement of 27 basis
points. We had a
significant decrease in incentive compensation expense, as 2013 financial performance did not satisfy certain performance requirements under our cash incentive compensation program. Retail labor
expense increased at a rate lower than our increase in sales. Declines in workers' compensation and general liability expenses also contributed to the overall decrease in SG&A expense as a percentage
of sales. The above items were partially offset by certain costs that increased from 2012 to 2013 at a rate higher than our increase in sales, including depreciation and amortization and fees
associated with the increased volume of customer purchases transacted with debit cards.

SG&A
expense was 21.4% as a percentage of sales in 2012 compared to 21.7% in 2011, an improvement of 25 basis points. Retail labor expense increased at a lower rate than our increase in
sales, partially due to ongoing benefits of our workforce management system coupled with savings due to various store work simplification initiatives. Also positively impacting SG&A expense was lower
legal

34

settlement
costs in 2012 due to two legal matters settled in 2011 for a combined expense of $13.1 million and the impact of decreased expenses ($2.9 million in 2012 compared to
$11.1 million in 2011) relating to secondary offerings of our common stock. Costs that increased at a rate higher than our sales increase include rent expense, fees associated with the
increased use of debit cards and depreciation expense, primarily related to additions of certain store equipment and fixtures.

Interest Expense. The decrease in interest expense in 2013 compared to 2012 is due to lower all-in interest rates primarily resulting
from the
completion of our refinancing in April 2013. See the detailed discussion under "Liquidity and Capital Resources" regarding refinancing of various long-term obligations and the related effect on
interest expense in the periods presented.

The
decrease in interest expense in 2012 compared to 2011 is due to lower average outstanding long-term obligations, resulting from the redemption, repurchase and refinancing of
indebtedness in 2012 and 2011 and lower all-in interest rates on our long-term obligations.

We
had outstanding variable-rate debt of $0.14 billion and $1.39 billion as of January 31, 2014 and February 1, 2013, respectively, after taking into
consideration the impact of interest rate swaps. The remainder of our outstanding indebtedness at January 31, 2014 and February 1, 2013 was fixed rate debt.

See
the detailed discussion under "Liquidity and Capital Resources" regarding refinancing of various long-term obligations and the related effect on interest expense in the periods
presented.

Other (Income) Expense. In 2013, we recorded pretax losses of $18.9 million resulting from the termination of our senior secured
credit
facilities. In 2012, we recorded pretax losses of $29.0 million resulting from the redemption of $450.7 million aggregate principal amount of our senior subordinated notes due 2017 plus
accrued and unpaid interest. In 2011, we recorded pretax losses of $60.3 million resulting from repurchases and the redemption of $864.3 million aggregate principal amount of our senior
notes due 2015 plus accrued and unpaid interest.

Income Taxes. The effective income tax rates for 2013, 2012, and 2011 were expenses of 37.0%, 36.4%, and 37.4%, respectively.

The
effective income tax rate for 2013 was 37.0% compared to a rate of 36.4% for 2012 which represents a net increase of 0.6 percentage points. The 2012 amounts were favorably
impacted by the resolution of income tax examinations that did not reoccur, to the same extent, in 2013. This effective tax rate increase was partially offset by the recording of an income tax benefit
in 2013 associated with the expiration of the assessment period during which the taxing authorities could have assessed additional income tax associated with our 2009 tax year. In addition, 2013
reflects larger income tax benefits associated with federal jobs credits. We receive a significant income tax benefit related to wages paid to certain newly hired employees that qualify for federal
jobs credits (principally the Work Opportunity Tax Credit or "WOTC"). The federal law authorizing the WOTC credit has expired for employees hired after December 31, 2013. In the past, when
these credit provisions have expired, Congress has reenacted the law on a retroactive basis. It is uncertain as to whether (or when) WOTC credits will be retroactively renewed in this instance. The
Company will receive credits in future periods for employees hired on or before December 31, 2013; however, in future periods the credit received will be significantly lower than what has been
recognized in 2013 and prior years without WOTC reenactment.

The
2012 effective tax rate of 36.4% was greater than the statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate. The 2012
effective tax rate of 36.4% was lower than the 2011 rate of 37.4% due primarily to the favorable resolution of a federal income tax examination during 2012.

35

The
2011 effective tax rate of 37.4% was greater than the statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate.

Off Balance Sheet Arrangements

The entities involved in the ownership structure underlying the leases for three of our distribution centers meet the accounting
definition of a Variable Interest Entity ("VIE"). One of these distribution centers has been recorded as a financing obligation whereby its property and equipment are reflected in our consolidated
balance sheets. The land and buildings of the other two distribution centers have been recorded as operating leases. We are not the primary beneficiary of these VIEs and, accordingly, have not
included these entities in our consolidated financial statements. Other than the foregoing, we are not party to any material off balance sheet arrangements.

Effects of Inflation

We experienced little or no overall product cost inflation in 2013 and 2012. In 2011, we experienced increased commodity cost pressures
mainly related to food, housewares and apparel products which were driven by increases in cotton, sugar, coffee, groundnut, resin, petroleum and other commodity costs.

Liquidity and Capital Resources

Current Financial Condition and Recent Developments

During the past three years, we have generated an aggregate of approximately $3.39 billion in cash flows from operating
activities and incurred approximately $1.62 billion in capital expenditures. During that period, we expanded the number of stores we operate by 1,760, representing growth of approximately 19%,
and we remodeled or relocated 1,749 stores, or approximately 16% of the stores we operated as of January 31, 2014. We intend to continue our current strategy of pursuing store growth, remodels
and relocations in 2014.

In
April 2013, we consummated a refinancing pursuant to which we terminated our existing senior secured credit agreements, entered into a five-year $1.85 billion unsecured credit
agreement (the "Facilities"), and issued senior notes with a face value of $1.3 billion, net of discount totaling $2.8 million. At January 31, 2014, we had total outstanding debt
(including the current portion of long-term obligations) of $2.82 billion, which includes balances under the Facilities, and senior notes, all of which are described in greater detail below. We
had $822.8 million available for borrowing under the Facilities at January 31, 2014.

We
believe our cash flow from operations and existing cash balances, combined with availability under the Facilities, and access to the debt markets will provide sufficient liquidity to
fund our current obligations, projected working capital requirements and capital spending for a period that includes the next twelve months as well as the next several years. However, our ability to
maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control. Depending on our liquidity levels, conditions in the capital markets and other factors, we
may from time to time
consider the issuance of debt, equity or other securities, the proceeds of which could provide additional liquidity for our operations.

Facilities

The Facilities consist of a $1.0 billion senior unsecured term loan facility (the "Term Facility") and an $850.0 million
senior unsecured revolving credit facility (the "Revolving Facility") which provides for the issuance of letters of credit up to $250.0 million. We may request, subject to agreement by one or
more lenders, increased revolving commitments and/or incremental term loan facilities in an aggregate amount of up to $150.0 million. The Facilities mature on April 11, 2018.

36

Borrowings
under the Facilities bear interest at a rate equal to an applicable margin plus, at our option, either (a) LIBOR or (b) a base rate (which is usually equal to
the prime rate). The applicable margin for borrowings as of January 31, 2014 was 1.275% for LIBOR borrowings and 0.275% for base-rate borrowings. We must also pay a facility fee, payable on any
used and unused amounts of the Facilities, and letter of credit fees. The applicable margins for borrowings, the facility fees and the letter of credit fees under the Facilities are subject to
adjustment each quarter based on our long-term senior unsecured debt ratings.

The
Term Facility will amortize in quarterly installments of $25.0 million, with the first such payment due on August 1, 2014, and the balance due at maturity. The
Facilities can be prepaid in whole or in part at any time. The Facilities contain certain covenants that place limitations on the incurrence of liens; change of business; mergers or sales of all or
substantially all assets; and subsidiary indebtedness, among other limitations. The Facilities also contain financial covenants that require the maintenance of a minimum fixed charge coverage ratio
and a maximum leverage ratio. As of January 31, 2014, we were in compliance with all such covenants. The Facilities also contain customary affirmative covenants and events of default.

As
of January 31, 2014, we had total outstanding letters of credit of $49.9 million, $27.2 million of which were under the Revolving Facility.

For
the remainder of fiscal 2014, we anticipate potential borrowings under the Revolving Facility up to a maximum of approximately $300 million outstanding at any one time,
including any anticipated borrowings to fund repurchases of common stock.

Senior Notes

On July 12, 2012, we issued $500.0 million aggregate principal amount of 4.125% senior notes due 2017 (the "2017 Senior
Notes") which mature on July 15, 2017. Interest on the 2017 Senior Notes is payable in cash on January 15 and July 15 of each year, and commenced on January 15, 2013. On
July 15, 2012, we used these net proceeds to redeem the remaining $450.7 million outstanding aggregate principal amount of 11.875%/12.625% senior subordinated toggle notes due 2017.

On
April 11, 2013, as part of our refinancing, we issued $400.0 million aggregate principal amount of 1.875% senior notes due 2018 (the "2018 Senior Notes"), net of
discount of $0.5 million, which mature on April 15, 2018; and issued $900.0 million aggregate principal amount of 3.25% senior notes due 2023 (the "2023 Senior Notes"), net of
discount of $2.4 million, which mature on April 15, 2023. Collectively, the 2017 Senior Notes, the 2018 Senior Notes and the 2023 Senior Notes comprise the "Senior Notes", each of which
were issued pursuant to an indenture as modified by supplemental indentures relating to each series of Senior Notes (as so supplemented, the "Senior Indenture"). Interest on the 2018 Senior Notes and
the 2023 Senior Notes is payable in cash on April 15 and October 15 of each year, and commenced on October 15, 2013.

We
may redeem some or all of the Senior Notes at any time at redemption prices set forth in the Senior Indenture. Upon the occurrence of a change of control triggering event, which is
defined in the Senior Indenture, each holder of our Senior Notes has the right to require us to repurchase some or all of such holder's Senior Notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.

The
Senior Indenture contains covenants limiting, among other things, our ability (subject to certain exceptions) to consolidate, merge, or sell or otherwise dispose of all or
substantially all of our assets; and our ability and the ability of our subsidiaries to incur or guarantee indebtedness secured by liens on any shares of voting stock of significant subsidiaries.

37

The
Senior Indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on our Senior Notes to become or to
be declared due and payable.

Sale-Leaseback Transaction

In January 2014 we consummated a transaction pursuant to which we sold and subsequently leased back the land, buildings and related
improvements for 233 of our stores. This transaction resulted in cash proceeds of approximately $281.6 million. These proceeds may be utilized for customary business purposes including
repurchases of our common stock.

Rating Agencies

In March 2013, Moody's upgraded our senior unsecured debt rating to Baa3 from Ba2 with a stable outlook. In April 2013,
Standard & Poor's upgraded our senior unsecured debt rating to BBB- from BB+ and reaffirmed our corporate debt rating of BBB-, both with a stable outlook. Our current
credit ratings, as well as future rating agency actions, could (i) impact our ability to finance our operations on satisfactory terms; (ii) affect our financing costs; and
(iii) affect our insurance premiums and collateral requirements necessary for our self-insured programs. There can be no assurance that we will be able to maintain or improve our current credit
ratings.

Interest Rate Swaps

We use interest rate swaps to minimize the risk of adverse changes in interest rates. These swaps are intended to reduce risk by
hedging an underlying economic exposure. Because of high correlation between the derivative financial instrument and the underlying exposure being hedged, fluctuations in the value of the financial
instruments are generally offset by reciprocal changes in the value of the underlying economic exposure. Our principal interest rate exposure relates to outstanding amounts under our Facilities. At
January 31, 2014, we had interest rate swaps with a total notional amount of $875.0 million. For more information see Item 7A, "Quantitative and Qualitative Disclosures about
Market Risk" below.

Fair Value Accounting

We have classified our interest rate swaps, as further discussed in Item 7A. below, in Level 2 of the fair value
hierarchy, as the significant inputs to the overall valuations are based on market-observable data or information derived from or corroborated by market-observable data, including market-based inputs
to models, model calibration to market-clearing transactions, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Where models are used, the
selection of a particular model to value a derivative depends upon the contractual terms of, and specific risks inherent in, the instrument as well as the availability of pricing information in the
market. We use similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of
volatility, and correlations of such inputs. For our derivatives, all of which trade in liquid markets, model inputs can generally be verified.

We
incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements
of our derivatives. The credit valuation adjustments are calculated by determining the total expected exposure of the derivatives (which incorporates both the current and potential future exposure)
and then applying each counterparty's credit spread to the applicable exposure. For derivatives with two-way exposure, such as interest rate swaps, the counterparty's credit spread is applied to our
exposure to the counterparty, and our own credit spread is applied to the counterparty's exposure to us, and the net

38

credit
valuation adjustment is reflected in our derivative valuations. The total expected exposure of a derivative is derived using market-observable inputs, such as yield curves and volatilities. The
inputs utilized for our own credit spread are based on implied spreads from our publicly-traded debt. For counterparties with publicly available credit information, the credit spreads over LIBOR used
in the calculations represent implied credit default swap spreads obtained from a third party credit data provider. In adjusting the fair value of our derivative contracts for the effect of
nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. Additionally, we actively
monitor counterparty credit ratings for any significant changes.

As
of January 31, 2014, the net credit valuation adjustments had an insignificant impact on the settlement values of our derivative liabilities. Various factors impact changes in
the credit valuation adjustments over time, including changes in the credit spreads of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total
expected exposure of the derivative instruments. When appropriate, valuations are also adjusted for various factors such as liquidity and bid/offer spreads, which factors we deemed to be immaterial as
of January 31, 2014.

Contractual Obligations

The following table summarizes our significant contractual obligations and commercial commitments as of January 31, 2014 (in
thousands):

Payments Due by Period

Contractual obligations

Total

1 year

1 - 3 years

3 - 5 years

5+ years

Long-term debt obligations

$

2,814,495

$

75,000

$

200,305

$

1,625,770

$

913,420

Capital lease obligations

6,841

966

2,232

1,412

2,231

Interest(a)

437,655

75,536

146,249

92,050

123,820

Self-insurance liabilities(b)

232,483

86,056

90,688

32,614

23,125

Operating leases(c)

5,738,832

712,563

1,275,836

1,050,678

2,699,755

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Subtotal

$

9,230,306

$

950,121

$

1,715,310

$

2,802,524

$

3,762,351

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commitments Expiring by Period

Commercial commitments(d)

Total

1 year

1 - 3 years

3 - 5 years

5+ years

Letters of credit

$

22,671

$

22,671

$



$



$



Purchase obligations(e)

783,407

725,984

40,749

16,674



​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Subtotal

$

806,078

$

748,655

$

40,749

$

16,674

$



​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Total contractual obligations and commercial commitments(f)

$

10,036,384

$

1,698,776

$

1,756,059

$

2,819,198

$

3,762,351

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

(a)

Represents
obligations for interest payments on long-term debt and capital lease obligations, and includes projected interest on variable rate long-term
debt, using 2013 year end rates. Variable rate long-term debt includes the balance of the senior revolving credit facility (which had a balance of zero as of January 31, 2014), the
balance of our tax increment financing of $14.5 million, and the unhedged portion of the senior term loan facility of $125 million.

(b)

We
retain a significant portion of the risk for our workers' compensation, employee health insurance, general liability, property loss and automobile
insurance. As these obligations do not have scheduled maturities, these amounts represent undiscounted estimates based upon actuarial assumptions. Reserves for workers' compensation and general
liability which existed as of the date

39

of
a merger transaction in 2007 were discounted in order to arrive at estimated fair value. All other amounts are reflected on an undiscounted basis in our consolidated balance sheets.

(c)

Operating
lease obligations are inclusive of amounts included in deferred rent in our consolidated balance sheets.

(d)

Commercial
commitments include information technology license and support agreements, supplies, fixtures, letters of credit for import merchandise, and
other inventory purchase obligations.

We
have potential payment obligations associated with uncertain tax positions that are not reflected in these totals. We anticipate that approximately
$3.6 million of such amounts will be paid in the coming year. We are currently unable to make reasonably reliable estimates of the period of cash settlement with the taxing authorities for our
remaining $18.8 million of reserves for uncertain tax positions.

Share Repurchase Program

On December 4, 2013, the Company's Board of Directors authorized a $1.0 billion increase to our existing common stock
repurchase program. The total remaining authorization is approximately $824 million at March 13, 2014. Under the authorization, purchases may be made in the open market or in privately
negotiated transactions from time to time subject to market and other conditions, and the authorization has no expiration date. For more detail about our share repurchase program, see Note 13
to the consolidated financial statements.

Other Considerations

We have not declared or paid recurring dividends subsequent to a merger transaction in 2007. Any decision to declare and pay dividends
in the future will be made at the discretion of our Board of Directors, and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual
restrictions and other factors that our Board of Directors may deem relevant.

Our
inventory balance represented approximately 48% of our total assets exclusive of goodwill and other intangible assets as of January 31, 2014. Our ability to effectively manage
our inventory balances can have a significant impact on our cash flows from operations during a given fiscal year. Inventory purchases are often somewhat seasonal in nature, such as the purchase of
warm-weather or
Christmas-related merchandise. Efficient management of our inventory has been and continues to be an area of focus for us.

As
described in Note 8 to the consolidated financial statements, we are involved in a number of legal actions and claims, some of which could potentially result in material cash
payments. Adverse developments in those actions could materially and adversely affect our liquidity. We also have certain income tax-related contingencies as disclosed in Note 4 to the
consolidated financial statements. Future negative developments could have a material adverse effect on our liquidity.

40

Cash flows

Cash flows from operating activities. Significant components of the increase in cash flows from operating activities in 2013 compared
to 2012 include
increased net income due primarily to increased sales and lower SG&A expenses, as a percentage of sales, in 2013 as described in more detail above under "Results of Operations." Significant components
of the increase in cash flows from operating activities were related to changes in working capital, including Merchandise inventories, Accounts payable and Accrued expenses and other. The impact of
the changes in inventory balances, which increased in both years but by a lesser amount in 2013 compared to 2012, is explained in more detail below. Items positively affecting Accrued expenses and
other include the timing of accruals and payments for legal settlements and non-income taxes (primarily sales taxes), and the adjustment of accruals during 2012 resulting from the favorable resolution
of income tax examinations which did not recur in 2013. Partially offsetting the positive impact of the items discussed above were reduced incentive compensation accruals, increased cash payments for
income taxes, and changes in Accounts payable, which are affected by the timing and mix of merchandise purchases, the most significant category of which were domestic purchases.

On
an ongoing basis, we closely monitor and manage our inventory balances, and they may fluctuate from period to period based on new store openings, the timing of purchases, and other
factors. Merchandise inventories increased by 7% during 2013, compared to a 19% increase in 2012. The percentage increase in inventories in 2013 was less than the prior year due to our emphasis on
more effective inventory management and our related efforts to control shrink. Inventory levels in the consumables category increased by $168.0 million, or 12%, in 2013 compared to an increase
of $245.7 million, or 22%, in 2012. The seasonal category decreased by $4.7 million, or 1%, in 2013
compared to an increase of $70.2 million, or 18%, in 2012. The home products category increased $22.0 million, or 9%, in 2013 compared to an increase of $56.2 million, or 29%, in
2012. The apparel category decreased by $29.5 million, or 9%, in 2013 compared to an increase of $16.0 million, or 5%, in 2012.

Significant
components of the increase in cash flows from operating activities in 2012 compared to 2011 include increased net income due primarily to increased sales and lower SG&A
expenses, as a percentage of sales, in 2012 as described in more detail above under "Results of Operations." A portion of the changes in Prepaid and other current assets as well as Accrued expenses
and other reflect the activity associated with a legal settlement accrued in 2011 for which payments were made in 2012. Changes in Accrued expenses and other were also affected by higher sales tax
accruals at the end of 2011 and the adjustment of accruals during 2012 due to the favorable resolution of income tax examinations. The reclassification of the tax benefit of stock options to cash
flows from financing activities was higher in 2012 due to an increase in stock options exercised. Changes in Accounts payable were due to increased merchandise purchases as discussed in more detail
below, the most significant category of which were domestic purchases.

In
addition, our inventories increased by 19% during 2012, compared to a 14% increase in 2011. The increase in inventories in 2012 was due to several factors including new items
introduced in 2012, the receipt during 2012 of certain items related to our 2013 merchandising initiatives, and the emphasis on improved presentation levels of select merchandise categories. Inventory
levels in the consumables category increased by $245.7 million, or 22%, in 2012 compared to an increase of $132.3 million, or 13%, in 2011. The seasonal category increased by
$70.2 million, or 18%, in 2012 compared to an increase of $27.5 million, or 7%, in 2011. The home products category increased $56.2 million, or 29%, in 2012 compared to an
increase of $24.6 million, or 14%, in 2011. The apparel category increased by $16.0 million, or 5%, in 2012 compared to an increase of $59.4 million, or 24%, in 2011.

Cash flows from investing activities. Cash expenditures for purchases of property and equipment decreased by 5.8% from 2012 to 2013.
Significant
components of property and equipment purchases in

41

2013
included the following approximate amounts: $187 million for improvements, upgrades, remodels and relocations of existing stores; $124 million for new leased stores;
$112 million for distribution centers, which included a significant portion of the construction cost of a distribution center in Pennsylvania; $76 million for stores purchased or built
by us; and $28 million for information systems upgrades and technology-related projects. The timing of new, remodeled and relocated store openings along with other factors may affect the
relationship between such openings and the related property and equipment purchases in any given period. During 2013, we opened 650 new stores and remodeled or relocated 582 stores. Our sale-leaseback
transaction which we consummated in January 2014 for 233
of our stores resulted in proceeds from the sale of these properties of approximately $281.6 million. See "Liquidity and Capital Resources"

Significant
components of property and equipment purchases in 2012 included the following approximate amounts: $155 million for new leased stores; $151 million for
improvements, upgrades, remodels and relocations of existing stores; $132 million for stores purchased or built by us; $83 million for distribution centers; $27 million for
systems-related capital projects; and $17 million for transportation-related projects. During 2012, we opened 625 new stores and remodeled or relocated 592 stores.

Significant
components of property and equipment purchases in 2011 included the following approximate amounts: $153 million for improvements, upgrades, remodels and relocations of
existing stores; $120 million for distribution centers, including costs associated with the construction of a distribution center in Alabama; $114 million for new leased stores;
$80 million for stores purchased or built by us; $28 million for systems-related capital projects; and $15 million for transportation-related projects. During 2011, we opened 625
new stores and remodeled or relocated 575 stores.

Capital
expenditures during 2014 are projected to be in the range of $450-$500 million. We anticipate funding 2014 capital requirements with existing cash balances, cash flows
from operations, and if necessary, as of January 31, 2014, we also have significant availability under our Revolving Facility. We plan to continue to invest in store growth and development of
approximately 700 new stores and approximately 500 stores to be remodeled or relocated. Capital expenditures in 2014 are anticipated to support our store growth as well as our remodel and relocation
initiatives, including capital outlays for leasehold improvements, fixtures and equipment; the construction of new stores; costs to support and enhance our supply chain and technology initiatives; and
also routine and ongoing capital requirements.

Cash flows from financing activities. The 2013 cash flows from financing activities reflect our refinancing in April 2013, including
the issuance of
long-term obligations which includes the $1.0 billion unsecured Term Facility and the issuance of Senior Notes totaling approximately $1.3 billion. Proceeds from these transactions were
used to extinguish our previous secured term loan and revolving credit facilities which had balances of $1.96 billion and $155.6 million at termination. Net repayments under the
Revolving Facility were $130.9 million during 2013. We paid debt issuance costs and hedging fees totaling $29.2 million in 2013 related to the refinancing. Also in 2013, we repurchased
11.0 million outstanding shares of our common stock at a total cost of $620.1 million.

In
2012 we repurchased 14.4 million outstanding shares of our common stock at a total cost of $671.4 million. In July 2012, we issued $500.0 million aggregate
principal amount of 4.125% senior notes due 2017. Also in July 2012, we redeemed the remaining aggregate principal amount of senior subordinated notes due 2017 at a redemption price of 105.938% of the
principal amount thereof, resulting in a cash outflow of $477.5 million. Net borrowings under our senior secured revolving credit facility were $101.8 million during 2012.

In
July 2011, we redeemed $839.3 million aggregate principal amount of our outstanding senior notes due 2015 at total cost of $883.9 million including associated premiums,
and in April 2011, we repurchased in the open market $25.0 million aggregate principal amount of senior notes due 2015 at a

42

total
cost of $26.8 million including associated premiums. A portion of the July 2011 redemption of senior notes due 2015 was financed by borrowings under our senior secured revolving credit
facility. Net borrowings under such facility were $184.7 million during 2011. In December 2011, we repurchased 4.9 million outstanding shares of our common stock at a total cost of
$185.0 million.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that
affect reported amounts and related disclosures. In addition to the estimates presented below, there are other items within our financial statements that require estimation, but are not deemed
critical as defined below. We believe these estimates are reasonable and appropriate. However, if actual experience differs from the assumptions and other considerations used, the resulting changes
could have a material effect on the financial statements taken as a whole.

Management
believes the following policies and estimates are critical because they involve significant judgments, assumptions, and estimates. Management has discussed the development and
selection of the critical accounting estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosures presented below relating to those policies and
estimates. See Note 1 to the consolidated financial statements for a detailed discussion of our principal accounting policies.

Merchandise Inventories. Merchandise inventories are stated at the lower of cost or market ("LCM") with cost determined using the retail
last in,
first out ("LIFO") method. We use the retail inventory method ("RIM") to calculate gross profit and the resulting valuation of inventories at cost, which are computed by applying a calculated
cost-to-retail inventory ratio to the retail value of sales at a department level. The RIM is an averaging method that has been widely used in the retail industry due to its practicality. Also, the
use of the RIM will result in valuing inventories at LCM if markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the retail inventory method
calculation are certain significant management judgments and estimates including, among others, initial markups, markdowns, and shrinkage, which significantly impact the gross profit calculation as
well as the ending inventory valuation at cost. These significant estimates, coupled with the fact that the RIM is an averaging process, can, under certain circumstances, produce distorted cost
figures. Factors that can lead to distortion in the calculation of the inventory balance include:



applying the RIM to a group of products that is not fairly uniform in terms of its cost and selling price relationship and
turnover;



applying the RIM to transactions over a period of time that include different rates of gross profit, such as those
relating to seasonal merchandise;



inaccurate estimates of inventory shrinkage between the date of the last physical inventory at a store and the financial
statement date; and



inaccurate estimates of LCM and/or LIFO reserves.

Factors
that reduce potential distortion include the use of historical experience in estimating the shrink provision (see discussion below) and an annual LIFO analysis whereby all SKUs
are considered for inclusion in the index formulation. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of expected year-end inventory levels, sales for the year and the expected rate of inflation/deflation for the year and are
thus subject to adjustment in the final year-end LIFO inventory valuation. We also perform interim inventory analysis for determining obsolete inventory. Our policy is to write down inventory to an
LCM value based on various management assumptions including estimated markdowns and sales required to liquidate such

43

inventory
in future periods. Inventory is reviewed on a quarterly basis and adjusted to reflect write-downs as appropriate.

Factors
such as slower inventory turnover due to changes in competitors' practices, consumer preferences, consumer spending and unseasonable weather patterns, among other factors, could
cause excess inventory requiring greater than estimated markdowns to entice consumer purchases, resulting in an unfavorable impact on our consolidated financial statements. Sales shortfalls due to the
above factors could cause reduced purchases from vendors and associated vendor allowances that would also result in an unfavorable impact on our consolidated financial statements.

We
calculate our shrink provision based on actual physical inventory results during the fiscal period and an accrual for estimated shrink occurring subsequent to a physical inventory
through the end of the fiscal reporting period. This accrual is calculated as a percentage of sales at each retail store, at a department level, and is determined by dividing the book-to-physical
inventory adjustments recorded during the previous twelve months by the related sales for the same period for each store. To the extent that subsequent physical inventories yield different results
than this estimated accrual, our effective shrink rate for a given reporting period will include the impact of adjusting the estimated results to the actual results. Although we perform physical
inventories in virtually all of our stores on an annual basis, the same stores do not necessarily get counted in the same reporting periods from year to year, which could impact comparability in a
given reporting period.

We
believe our estimates and assumptions related to merchandise inventories have generally been accurate in recent years and we do not currently anticipate material changes in these
estimates and assumptions.

Goodwill and Other Intangible Assets. The qualitative and quantitative assessments related to the valuation and any potential
impairment of goodwill
and other intangible assets are each subject to judgments and/or assumptions. Significant judgments required in the analysis of qualitative factors may include determining the appropriate factors to
consider and the relative importance of those factors along with other assumptions. Significant judgments required in the quantitative testing process may include projecting future cash flows,
determining appropriate discount rates, correctly applying valuation techniques, correctly computing the implied fair value of goodwill if necessary, and other assumptions. Future cash flow
projections are based on management's projections and represent best estimates taking into account recent financial performance, market trends, strategic plans and other available information, which
in recent years have been materially accurate. Although not currently anticipated, changes in these estimates and assumptions could materially affect the determination of fair value or impairment.
Future indicators of impairment could result in an asset impairment charge. If these judgments or assumptions are incorrect or flawed, the analysis could be negatively impacted.

Our
most recent testing of our goodwill and indefinite lived trade name intangible assets was completed during the third quarter of 2013. No indicators of impairment were evident and no
assessment of or adjustment to these assets was required. We are not currently projecting a decline in cash flows that could be expected to have an adverse effect such as a violation of debt covenants
or future impairment charges.

Property and Equipment. Property and equipment are recorded at cost. We group our assets into relatively homogeneous classes and
generally provide
for depreciation on a straight-line basis over the estimated average useful life of each asset class, except for leasehold improvements, which are amortized over the lesser of the applicable lease
term or the estimated useful life of the asset. Certain store and warehouse fixtures, when fully depreciated, are removed from the cost and related accumulated depreciation and amortization accounts.
The valuation and classification of these assets and the assignment of depreciable lives involves significant judgments and the use of estimates, which we believe have been materially accurate in
recent years.

44

Impairment of Long-lived Assets. Impairment of long-lived assets results when the carrying value of the assets exceeds the estimated
undiscounted
future cash flows generated by the assets. Our estimate of undiscounted future store cash flows is based upon historical operations of the stores and estimates of future profitability which
encompasses many factors that are subject to variability and are difficult to predict. If our estimates of future cash flows are not materially accurate, our impairment analysis could be impacted
accordingly. If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset's estimated fair value. The fair
value is estimated based primarily upon projected future cash flows (discounted at our credit adjusted risk-free rate) or other reasonable estimates of fair market value in accordance with
U.S. GAAP. Although not currently anticipated, changes in these estimates, assumptions or projections could materially affect the determination of fair value or impairment.

Insurance Liabilities. We retain a significant portion of the risk for our workers' compensation, employee health, property loss,
automobile and
general liability. These represent significant costs primarily due to our large employee base and number of stores. Provisions are made for these liabilities on an undiscounted basis based on actual
claim data and estimates of incurred but not reported claims developed using actuarial methodologies based on historical claim trends, which have been and are anticipated to continue to be materially
accurate. If future claim trends deviate from recent historical patterns, or other unanticipated events affect the number and significance of future claims, we may be required to record additional
expenses or expense reductions, which could be material to our future financial results.

Contingent LiabilitiesIncome Taxes. Income tax reserves are determined using the
methodology established by accounting standards relating to uncertainty in income taxes. These standards require companies to assess each income tax position taken using a two-step process. A
determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax
position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate
settlement of the respective tax position. Uncertain tax positions require determinations and liabilities to be estimated based on provisions of the tax law which may be subject to change or varying
interpretation. If our determinations and estimates prove to be inaccurate, the resulting adjustments could be material to our future financial results.

Contingent LiabilitiesLegal Matters. We are subject to legal, regulatory and other proceedings and claims. We establish
liabilities as
appropriate for these claims and proceedings based upon the probability and estimability of losses and to fairly present, in conjunction with the disclosures of these matters in our financial
statements and SEC filings, management's view of our exposure. We review outstanding claims and proceedings with external counsel to assess probability and estimates of loss, which includes an
analysis of whether such loss estimates are probable, reasonably possible, or remote. We re-evaluate these assessments on a quarterly basis or as new and significant information becomes available to
determine whether a liability should be established or if any existing liability should be adjusted. The actual cost of resolving a claim or proceeding ultimately may be substantially different than
the amount of the recorded liability. In addition, because it is not permissible under U.S. GAAP to establish a litigation liability until the loss is both probable and estimable, in some cases
there may be insufficient time to establish a liability prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement).

Lease Accounting and Excess Facilities. Many of our stores are subject to build-to-suit arrangements with landlords, which typically
carry a primary
lease term of up to 15 years with multiple renewal options. We also have stores subject to shorter-term leases and many of these leases have renewal options. Certain of our stores have
provisions for contingent rentals based upon a percentage of defined sales volume. We recognize contingent rental expense when the achievement of specified

45

sales
targets is considered probable. We record minimum rental expense on a straight-line basis over the base, non-cancelable lease term commencing on the date that we take physical possession of the
property from the landlord, which normally includes a period prior to store opening to make necessary leasehold improvements and install store fixtures. When a lease contains a predetermined fixed
escalation of the minimum rent, we recognize the related rent expense on a straight-line basis and record the difference between the recognized rental expense and the amounts payable under the lease
as deferred rent. Tenant allowances, to the extent received, are recorded as deferred incentive rent and
amortized as a reduction to rent expense over the term of the lease. We reflect as a liability any difference between the calculated expense and the amounts actually paid. Improvements of leased
properties are amortized over the shorter of the life of the applicable lease term or the estimated useful life of the asset.

Share-Based Payments. Our share-based stock option awards are valued on an individual grant basis using the Black-Scholes-Merton closed
form option
pricing model. We believe that this model fairly estimates the value of our share-based awards. The application of this valuation model involves assumptions that are judgmental and highly sensitive in
the valuation of stock options, which affects compensation expense related to these options. These assumptions include the term that the options are expected to be outstanding, the historical
volatility of our stock price, applicable interest rates and the dividend yield of our stock. Other factors involving judgments that affect the expensing of share-based payments include estimated
forfeiture rates of share-based awards. Historically, these estimates have not been materially inaccurate; however, if our estimates differ materially from actual experience, we may be required to
record additional expense or reductions of expense, which could be material to our future financial results.

Fair Value Measurements. Accounting standards for the measurement of fair value of assets and liabilities establish a fair value
hierarchy that
distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2
of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Therefore, Level 3
inputs are typically based on an entity's own assumptions, as there is little, if any, related market activity, and thus require the use of significant judgment and estimates. Currently, we have no
assets or liabilities that are valued based solely on Level 3 inputs.

Our
fair value measurements are primarily associated with our derivative financial instruments, intangible assets, debt instruments, and to a lesser degree our investments. We use
various valuation models in determining the values of these assets and liabilities. The application of these models involves assumptions such as discounted cash flow analysis and interest rate curves
that are judgmental and highly sensitive in the fair value computations. In recent years, these methodologies have produced materially accurate valuations.

Derivative Financial Instruments. In addition to estimating the fair value of derivatives as discussed above, we also bear the risk that
certain
derivative instruments that have been designated as hedges and currently meet the strict hedge accounting requirements may not qualify in the future as "highly effective," as defined, as well as the
risk that hedged transactions in cash flow hedging relationships may no longer be considered probable to occur. If hedge accounting were disallowed it could cause greater volatility in our results of
operations. Further, new regulations, accounting standards, and
related interpretations pertaining to these instruments may be issued in the future, and we cannot predict the possible impact that such requirements may have on our use of derivative instruments.

46

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Risk Management

We are exposed to market risk primarily from adverse changes in interest rates, and to a lesser degree commodity prices. To minimize
this risk, we may periodically use financial instruments, including derivatives. All derivative financial instrument transactions must be authorized and executed pursuant to approval by the Board of
Directors. As a matter of policy, we do not buy or sell financial instruments for speculative or trading purposes, and any such derivative financial instruments are intended to be used to reduce risk
by hedging an underlying economic exposure. Because of high correlation between the derivative financial instrument and the underlying exposure being hedged, fluctuations in the value of the financial
instruments are generally offset by reciprocal changes in the value of the underlying economic exposure.

Interest Rate Risk

We manage our interest rate risk through the strategic use of fixed and variable interest rate debt and, from time to time, derivative
financial instruments. Our principal interest rate exposure relates to outstanding amounts under our unsecured debt Facilities. As of January 31, 2014, we had variable rate borrowings of
$1.0 billion under our Term Facility and no borrowings outstanding under our Revolving Facility. In order to mitigate a portion of the variable rate interest exposure under the Facilities, we
have entered into various interest rate swaps in recent years. For a detailed discussion of our Facilities, see Note 5 to the consolidated financial statements.

Currently,
we are counterparty to certain interest rate swaps with a total notional amount of $875.0 million entered into in May 2012 in order to mitigate a portion of the
variable rate interest exposure under the Facilities. These swaps are scheduled to mature in May 2015. Under the terms of these agreements we swapped one month LIBOR rates for fixed interest rates,
resulting in the payment of an all-in fixed rate of 1.86% on a notional amount of $875.0 million. Such all-in rate was reduced in 2013 due to a reduction in the underlying applicable margin on
our Term Facility as a result of the refinancing of outstanding indebtedness as discussed in Note 5 to the consolidated financial statements.

A
change in interest rates on variable rate debt impacts our pre-tax earnings and cash flows; whereas a change in interest rates on fixed rate debt impacts the economic fair value of
debt but not our pre-tax earnings and cash flows. Our interest rate swaps qualify for hedge accounting as cash flow hedges. Therefore, changes in market fluctuations related to the effective portion
of these cash flow hedges do not impact our pre-tax earnings until the accrued interest is recognized on the derivatives and the associated hedged debt. Based on our variable rate borrowing levels and
interest rate swaps outstanding as of January 31, 2014 and February 1, 2013, respectively, the annualized effect of a one percentage point increase in variable interest rates would have
resulted in a pretax reduction of our earnings and cash flows of approximately $1.4 million in 2013 and $13.9 million in 2012.

To
mitigate our interest rate risk on our planned issuance of 10-year senior notes, we entered into six treasury locks that were designated as cash flow hedges during the period from
March 20, 2013 to March 27, 2013. Such instruments had a combined notional amount of $700.0 million and a weighted-average 10-year U.S. Treasury rate of 1.94%. The issuance of the
2023 Senior Notes occurred on April 11, 2013, and the related settlement of the treasury locks resulted in a loss of $13.2 million that was deferred to Other comprehensive income. For
more information, see Note 5 to the consolidated financial statements.

Market
conditions and periodic uncertainties in the global credit markets may increase the credit risk of counterparties to our swap agreements. In the event such counterparties fail to
perform under our swap agreements and we are unable to enter into new swap agreements on terms favorable to us, our ability to effectively manage our interest rate risk may be materially impaired. We
attempt to

47

manage
counterparty credit risk by periodically evaluating the financial position and creditworthiness of such counterparties, monitoring the amount for which we are at risk with each counterparty,
and where possible, dispersing the risk among multiple counterparties. There can be no assurance that we will manage or mitigate our counterparty credit risk effectively.

48

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Shareholders of
Dollar General Corporation

We
have audited the accompanying consolidated balance sheets of Dollar General Corporation and subsidiaries as of January 31, 2014 and February 1, 2013, and the related
consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended January 31, 2014. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dollar General Corporation and subsidiaries at
January 31, 2014 and February 1, 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 2014, in
conformity with U.S. generally accepted accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Dollar General Corporation and subsidiaries' internal control
over financial reporting as of January 31, 2014, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 framework) and our report dated March 20, 2014 expressed an unqualified opinion thereon.

The accompanying notes are an integral part of the consolidated financial statements.

52

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands except per share amounts)

Common
Stock
Shares

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Total

Balances, January 28, 2011

341,507

$

298,819

$

2,954,177

$

830,932

$

(20,296

)

$

4,063,632

Net income







766,685



766,685

Unrealized net gain (loss) on hedged transactions









15,105

15,105

Share-based compensation expense





15,250





15,250

Repurchases of common stock

(4,960

)

(4,340

)

(1,558

)

(180,699

)



(186,597

)

Tax benefit from stock option exercises





27,727





27,727

Exercise of share-based awards

1,534

1,342

(28,734

)





(27,392

)

Other equity transactions

8

7

165





172

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Balances, February 3, 2012

338,089

$

295,828

$

2,967,027

$

1,416,918

$

(5,191

)

$

4,674,582

Net income







952,662



952,662

Unrealized net gain (loss) on hedged transactions









2,253

2,253

Share-based compensation expense





21,664





21,664

Repurchases of common stock

(14,394

)

(12,595

)

(16

)

(658,848

)



(671,459

)

Tax benefit from stock option exercises





77,020





77,020

Exercise of share-based awards

3,048

2,667

(75,787

)





(73,120

)

Other equity transactions

326

285

1,443





1,728

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Balances, February 1, 2013

327,069

$

286,185

$

2,991,351

$

1,710,732

$

(2,938

)

$

4,985,330

Net income







1,025,116



1,025,116

Unrealized net gain (loss) on hedged transactions









(6,972

)

(6,972

)

Share-based compensation expense





20,961





20,961

Repurchases of common stock

(11,037

)

(9,657

)



(610,395

)



(620,052

)

Tax benefit from stock option exercises





24,151





24,151

Exercise of share-based awards

1,026

896

(27,237

)





(26,341

)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Balances, January 31, 2014

317,058

$

277,424

$

3,009,226

$

2,125,453

$

(9,910

)

$

5,402,193

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

The accompanying notes are an integral part of the consolidated financial statements.

53

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

For the Year Ended

January 31,
2014

February 1,
2013

February 3,
2012

Cash flows from operating activities:

Net income

$

1,025,116

$

952,662

$

766,685

Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization

332,837

302,911

275,408

Deferred income taxes

(36,851

)

(2,605

)

10,232

Tax benefit of share-based awards

(30,990

)

(87,752

)

(33,102

)

Loss on debt retirement, net

18,871

30,620

60,303

Noncash share-based compensation

20,961

21,664

15,250

Other noncash (gains) and losses

(12,747

)

6,774

54,190

Change in operating assets and liabilities:

Merchandise inventories

(144,943

)

(391,409

)

(291,492

)

Prepaid expenses and other current assets

(4,947

)

5,553

(34,554

)

Accounts payable

36,942

194,035

104,442

Accrued expenses and other liabilities

16,265

(36,741

)

71,763

Income taxes

(5,249

)

138,711

51,550

Other

(2,200

)

(3,071

)

(195

)

​

​

​

​

​

​

​

​

​

​

​

Net cash provided by (used in) operating activities

1,213,065

1,131,352

1,050,480

​

​

​

​

​

​

​

​

​

​

​

Cash flows from investing activities:

Purchases of property and equipment

(538,444

)

(571,596

)

(514,861

)

Proceeds from sales of property and equipment

288,466

1,760

1,026

​

​

​

​

​

​

​

​

​

​

​

Net cash provided by (used in) investing activities

(249,978

)

(569,836

)

(513,835

)

​

​

​

​

​

​

​

​

​

​

​

Cash flows from financing activities:

Issuance of long-term obligations

2,297,177

500,000



Repayments of long-term obligations

(2,119,991

)

(478,255

)

(911,951

)

Borrowings under revolving credit facilities

1,172,900

2,286,700

1,157,800

Repayments of borrowings under revolving credit facilities

(1,303,800

)

(2,184,900

)

(973,100

)

Debt issuance costs

(15,996

)

(15,278

)



Payments for cash flow hedge related to debt issuance

(13,217

)





Repurchases of common stock

(620,052

)

(671,459

)

(186,597

)

Other equity transactions, net of employee taxes paid

(26,341

)

(71,393

)

(27,219

)

Tax benefit of share-based awards

30,990

87,752

33,102

​

​

​

​

​

​

​

​

​

​

​

Net cash provided by (used in) financing activities

(598,330

)

(546,833

)

(907,965

)

​

​

​

​

​

​

​

​

​

​

​

Net increase (decrease) in cash and cash equivalents

364,757

14,683

(371,320

)

Cash and cash equivalents, beginning of year

140,809

126,126

497,446

​

​

​

​

​

​

​

​

​

​

​

Cash and cash equivalents, end of year

$

505,566

$

140,809

$

126,126

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Supplemental cash flow information:

Cash paid for:

Interest

$

73,464

$

121,712

$

209,351

Income taxes

$

646,811

$

422,333

$

382,294

Supplemental schedule of noncash investing and financing activities:

Purchases of property and equipment awaiting processing for payment, included in Accounts payable

$

27,082

$

39,147

$

35,662

Purchases of property and equipment under capital lease obligations

$



$

3,440

$



The accompanying notes are an integral part of the consolidated financial statements.

54

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of presentation and accounting policies

Basis of presentation

These notes contain references to the years 2013, 2012, and 2011, which represent fiscal years ended January 31, 2014,
February 1, 2013, and February 3, 2012, respectively. The Company's fiscal year ends on the Friday closest to January 31. The 2013 and 2012 years were 52-week accounting
periods, while 2011 was a 53-week accounting period. The consolidated financial statements include all subsidiaries of the Company, except for its not-for-profit subsidiary which the Company does not
control. Intercompany transactions have been eliminated.

The
Company sells general merchandise on a retail basis through 11,132 stores (as of January 31, 2014) in 40 states covering most of the southern, southwestern, midwestern and
eastern United States. The Company owns distribution centers ("DCs") in Scottsville, Kentucky; South Boston, Virginia; Alachua, Florida; Zanesville, Ohio; Jonesville, South Carolina; Marion, Indiana;
Bessemer, Alabama; and Bethel, Pennsylvania, and leases DCs in Ardmore, Oklahoma; Fulton, Missouri; Indianola, Mississippi; and Lebec, California.

Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with insignificant interest rate risk and original maturities of three
months or less when purchased. Such investments primarily consist of money market funds, bank deposits, certificates of deposit (which may
include foreign time deposits), and commercial paper. The carrying amounts of these items are a reasonable estimate of their fair value due to the short maturity of these investments.

Payments
due from processors for electronic tender transactions classified as cash and cash equivalents totaled approximately $44.0 million and $45.2 million at
January 31, 2014 and February 1, 2013, respectively.

At
January 31, 2014, the Company maintained cash balances to meet a $20 million minimum threshold set by insurance regulators, as further described below under "Insurance
liabilities."

Investments in debt and equity securities

The Company accounts for investments in debt and marketable equity securities as held-to-maturity, available-for-sale, or trading,
depending on their classification. Debt securities categorized as held-to-maturity are stated at amortized cost. Debt and equity securities categorized as available-for-sale are stated at fair value,
with any unrealized gains and losses, net of deferred income taxes, reported as a component of Accumulated other comprehensive loss. Trading securities (primarily mutual funds held pursuant to
deferred compensation and supplemental retirement plans, as further discussed below in Notes 6 and 9) are stated at fair value, with changes in fair value recorded as a component of
Selling, general and administrative ("SG&A") expense.

For
the years ended January 31, 2014, February 1, 2013, and February 3, 2012, gross realized gains and losses on the sales of available-for-sale securities were not
material. The cost of securities sold is based upon the specific identification method.

55

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

Merchandise inventories

Inventories are stated at the lower of cost or market with cost determined using the retail last-in, first-out ("LIFO") method as this
method results in a better matching of costs
and revenues. Under the Company's retail inventory method ("RIM"), the calculation of gross profit and the resulting valuation of inventories at cost are computed by applying a calculated
cost-to-retail inventory ratio to the retail value of sales at a department level. The use of the RIM will result in valuing inventories at the lower of cost or market ("LCM") if markdowns are
currently taken as a reduction of the retail value of inventories. Costs directly associated with warehousing and distribution are capitalized into inventory.

The
excess of current cost over LIFO cost was approximately $90.9 million and $101.9 million at January 31, 2014 and February 1, 2013, respectively. Current
cost is determined using the RIM on a first-in, first-out basis. Under the LIFO inventory method, the impacts of rising or falling market price changes increase or decrease cost of sales (the LIFO
provision or benefit). The Company recorded a LIFO provision (benefit) of $(11.0) million in 2013, $1.4 million in 2012, and $47.7 million in 2011, which is included in cost of goods
sold in the consolidated statements of income.

The
Company purchases its merchandise from a wide variety of suppliers. Approximately 8% and 7% of the Company's purchases in 2013 were made from the Company's largest and second largest
suppliers, respectively.

Vendor rebates

The Company accounts for all cash consideration received from vendors in accordance with applicable accounting standards pertaining to
such arrangements. Cash consideration received from a vendor is generally presumed to be a rebate or an allowance and is accounted for as a reduction of merchandise purchase costs as earned. However,
certain specific, incremental and otherwise qualifying SG&A expenses related to the promotion or sale of vendor products may be offset by cash consideration received from vendors, in accordance with
arrangements such as cooperative advertising, when earned for dollar amounts up to but not exceeding actual incremental costs.

Prepaid expenses and other current assets

Prepaid expenses and other current assets include prepaid amounts for rent, maintenance, business licenses, advertising, and insurance,
and amounts receivable for certain vendor rebates (primarily those expected to be collected in cash) and coupons.

Property and equipment

As the result of a merger transaction in 2007, the Company's property and equipment was recorded at estimated fair values. Property and
equipment acquired subsequent to the merger has been recorded at cost. The Company records depreciation and amortization on a straight-line basis over the

amortized
over the lesser of the life of the applicable lease term or the estimated useful life of the asset

Depreciation
expense related to property and equipment was approximately $315.3 million, $277.2 million and $243.7 million for 2013, 2012 and 2011. Amortization of
capital lease assets is included in depreciation expense. Interest on borrowed funds during the construction of property and equipment is capitalized where applicable. Interest costs of
$1.2 million, $0.6 million and $1.5 million were capitalized in 2013, 2012 and 2011.

Impairment of long-lived assets

When indicators of impairment are present, the Company evaluates the carrying value of long-lived assets, other than goodwill, in
relation to the operating performance and future cash flows or the appraised values of the underlying assets. Generally, the Company's policy is to review for impairment stores open more than three
years for which current cash flows from operations are negative. Impairment results when the carrying value of the assets exceeds the undiscounted future cash flows expected to be generated by the
assets. The Company's estimate of undiscounted future cash flows is based upon historical operations of the stores and estimates of future store profitability which encompasses many factors that are
subject to variability and difficult to predict. If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the
asset's estimated fair value. The fair value is estimated based primarily upon estimated future cash flows over the asset's remaining useful life (discounted at the Company's credit adjusted risk-free
rate) or other reasonable estimates of fair market value. Assets to be disposed of are adjusted to the fair value less the cost to sell if less than the book value.

The
Company recorded impairment charges included in SG&A expense of approximately $0.5 million in 2013, $2.7 million in 2012 and $1.0 million in 2011, to reduce the
carrying value of certain of its stores' assets. Such action was deemed necessary based on the Company's evaluation that such amounts would not be recoverable primarily due to insufficient sales or
excessive costs resulting in negative current and projected future cash flows at these locations.

57

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

Goodwill and other intangible assets

The Company amortizes intangible assets over their estimated useful lives unless such lives are deemed indefinite. Goodwill and
intangible assets with indefinite lives are tested for impairment annually or more frequently if indicators of impairment are present. Other intangible assets are tested for impairment if indicators
of impairment are present. Impaired assets are written down to fair value as required. No impairment of intangible assets has been identified during any of the periods presented.

In
accordance with accounting standards for goodwill and indefinite-lived intangible assets, an entity has the option first to assess qualitative factors to determine whether events and
circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. If after such assessment an entity concludes that the asset is not impaired,
then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test,
and if impaired, the associated assets must be written down to fair value as described in further detail below.

The
quantitative goodwill impairment test is a two-step process that requires management to make judgments in determining what assumptions to use in the calculation. The first step of
the process consists of estimating the fair value of the Company's reporting unit based on valuation techniques (including a discounted cash flow model using revenue and profit forecasts) and
comparing that estimated fair value with the recorded carrying value, which includes goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the
amount of the impairment by determining an "implied fair value" of goodwill. The determination of the implied fair value of goodwill would require the Company to allocate the estimated fair value of
its reporting unit to its assets and liabilities. Any unallocated fair value would represent the implied fair value of goodwill, which would be compared to its corresponding carrying value.

The
quantitative impairment test for intangible assets compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its
fair value, an impairment loss is recognized in an amount equal to that excess.

Other assets

Noncurrent Other assets consist primarily of qualifying prepaid expenses, debt issuance costs which are amortized over the life of the
related obligations, and utility, security and other deposits.

Accrued expenses and other liabilities

Accrued expenses and other consist of the following:

(In thousands)

January 31,
2014

February 1,
2013

Compensation and benefits

$

47,909

$

76,981

Insurance

84,697

86,189

Taxes (other than taxes on income)

104,990

89,329

Other

130,982

104,939

​

​

​

​

​

​

​

​

$

368,578

$

357,438

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

58

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

Other
accrued expenses primarily include the current portion of liabilities for interest expense, legal settlements, freight expense, utilities, and common area and other maintenance
charges.

Insurance liabilities

The Company retains a significant portion of risk for its workers' compensation, employee health, general liability, property and
automobile claim exposures. Accordingly, provisions are made for the Company's estimates of such risks. The undiscounted future claim costs for the workers' compensation, general liability, and health
claim risks are derived using actuarial methods and are recorded as self-insurance reserves pursuant to Company policy. To the extent that subsequent claim costs vary from those estimates, future
results of operations will be affected as the reserves are adjusted.

Ashley
River Insurance Company ("ARIC"), a South Carolina-based wholly owned captive insurance subsidiary of the Company, charges the operating subsidiary companies premiums to insure
the retained workers' compensation and non-property general liability exposures. Pursuant to South Carolina insurance regulations, ARIC is required to maintain certain levels of cash and cash
equivalents related to its self-insured exposures. ARIC currently insures no unrelated third-party risk.

Operating leases and related liabilities

Rent expense is recognized over the term of the lease. The Company records minimum rental expense on a straight-line basis over the
base, non-cancelable lease term commencing on the date that the Company takes physical possession of the property from the landlord, which normally includes a period prior to the store opening to make
necessary leasehold improvements and install store fixtures. When a lease contains a predetermined fixed escalation of the minimum rent, the Company recognizes the related rent expense on a
straight-line basis and records the difference between the recognized rental expense and the amounts payable under the lease as deferred rent. Tenant allowances, to the extent received, are recorded
as deferred incentive rent and are amortized as a reduction to rent expense over the term of the lease. Any difference between the calculated expense and the amounts actually paid are reflected as a
liability, with the current portion in Accrued expenses
and other and the long-term portion in Other liabilities in the consolidated balance sheets, and totaled approximately $49.5 million and $43.6 million at January 31, 2014 and
February 1, 2013, respectively.

The
Company recognizes contingent rental expense when the achievement of specified sales targets are considered probable. The amount expensed but not paid as of January 31, 2014
and February 1, 2013 was approximately $6.0 million and $7.7 million, respectively, and is included in Accrued expenses and other in the consolidated balance sheets.

59

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

Other liabilities

Noncurrent Other liabilities consist of the following:

(In thousands)

January 31,
2014

February 1,
2013

Compensation and benefits

$

17,604

$

18,404

Insurance

145,162

137,451

Income tax related reserves

18,802

23,383

Deferred gain on sale leaseback

62,693



Other

52,285

46,161

​

​

​

​

​

​

​

​

$

296,546

$

225,399

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Amounts
categorized as "Other" in the table above consist primarily of deferred rent and derivative liabilities.

Fair value accounting

The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair
value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on
the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting
standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs
that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3
of the hierarchy).

Level 1
inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and
liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are
observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity's own assumptions, as there is little, if any,
observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the
entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The
valuation of the Company's derivative financial instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash
flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves.
The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted

The
Company incorporates credit valuation adjustments (CVAs) to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair
value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit
enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

In
connection with accounting standards for fair value measurement, the Company has made an accounting policy election to measure the credit risk of its derivative financial instruments
that are subject to master netting agreements on a net basis by counterparty portfolio. The Company has determined that the majority of the inputs used to value its derivatives fall within
Level 2 of the fair value hierarchy. However, the CVAs associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of
default by itself and its counterparties. As of January 31, 2014, the Company has assessed the significance of the impact of the CVAs on the overall valuation of its derivative positions and
has determined that the CVAs are not significant to the overall valuation of its derivatives. Based on the Company's review of the CVAs by counterparty portfolio, the Company has determined that the
CVAs are not significant to the overall portfolio valuations, as the CVAs are deemed to be immaterial in terms of basis points and are a very small percentage of the aggregate notional value of the
derivative instruments. Although some of the CVAs as a percentage of termination value appear to be more significant, primary emphasis was placed on a review of the CVA in basis points and the
percentage of the notional value. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Derivative financial instruments

The Company accounts for derivative financial instruments in accordance with applicable accounting standards for such instruments and
hedging activities, which require that all derivatives are recorded on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the
derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to
apply hedge accounting.

Derivatives
designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as
interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted
transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally
provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are
intended to economically hedge a certain portion of its risk, even

61

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

though
hedge accounting does not apply or the Company elects not to apply the hedge accounting standards.

The
Company's derivative financial instruments, in the form of interest rate swaps at January 31, 2014, are related to variable interest rate risk exposures associated with the
Company's long-term debt and were entered into in an effort to manage that risk. The counterparties to the Company's derivative agreements are all major international financial institutions. The
Company continually monitors its position and the credit ratings of its counterparties and does not anticipate nonperformance by the counterparties.

Revenue and gain recognition

The Company recognizes retail sales in its stores at the time the customer takes possession of merchandise. All sales are net of
discounts and estimated returns and are presented net of taxes assessed by governmental authorities that are imposed concurrent with those sales. The liability for retail merchandise returns is based
on the Company's prior experience. The Company records gain contingencies when realized.

The
Company recognizes gift card sales revenue at the time of redemption. The liability for the gift cards is established for the cash value at the time of purchase. The liability for
outstanding gift cards was approximately $4.3 million and $3.6 million at January 31, 2014 and February 1, 2013, respectively, and is recorded in Accrued expenses and other
liabilities. Through January 31, 2014, the Company has not recorded any breakage income related to its gift card program.

Advertising costs

Advertising costs are expensed upon performance, "first showing" or distribution, and are reflected in SG&A expenses net of earned
cooperative advertising amounts provided by vendors which are specific, incremental and otherwise qualifying expenses related to the promotion or sale of vendor products for dollar amounts up to but
not exceeding actual incremental costs. Advertising costs were $70.5 million, $61.7 million and $50.4 million in 2013, 2012 and 2011, respectively. These costs primarily include
promotional circulars, targeted circulars supporting new stores, television and radio advertising, in-store signage, and costs associated with the sponsorships of certain automobile racing activities.
Vendor funding for cooperative advertising offset reported expenses by $31.9 million, $23.6 million and $20.8 million in 2013, 2012 and 2011, respectively.

Share-based payments

The Company recognizes compensation expense for share-based compensation based on the fair value of the awards on the grant date.
Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate may be adjusted periodically based on the extent to which actual forfeitures
differ, or are expected to differ, from the prior estimate. The forfeiture rate is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully
vested. The Company bases this estimate on historical experience or estimates of future trends, as applicable. An increase in the forfeiture rate will decrease compensation expense.

The
fair value of each option grant is separately estimated and amortized into compensation expense on a straight-line basis between the applicable grant date and each vesting date. The
Company

62

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

has
estimated the fair value of all stock option awards as of the grant date by applying the Black-Scholes-Merton option pricing valuation model. The application of this valuation model involves
assumptions that are judgmental and highly sensitive in the determination of compensation expense.

The
Company calculates compensation expense for restricted stock, share units and similar awards as the difference between the market price of the underlying stock on the grant date and
the purchase price, if any. Such expense is recognized on a straight-line basis for graded awards or an accelerated basis for performance awards over the period in which the recipient earns the
awards.

Store pre-opening costs

Pre-opening costs related to new store openings and the related construction periods are expensed as incurred.

Income taxes

Under the accounting standards for income taxes, the asset and liability method is used for computing the future income tax
consequences of events that have been recognized in the Company's consolidated financial statements or income tax returns. Deferred income tax expense or benefit is the net change during the year in
the Company's deferred income tax assets and liabilities.

The
Company includes income tax related interest and penalties as a component of the provision for income tax expense.

Income
tax reserves are determined using a methodology which requires companies to assess each income tax position taken using a two-step process. A determination is first made as to
whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more
likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position.
Uncertain tax positions require determinations and estimated liabilities to be made based on provisions of the tax law which may be subject to change or varying interpretation. If the Company's
determinations and estimates prove to be inaccurate, the resulting adjustments could be material to the Company's future financial results.

Management estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Accounting standards

In February 2013, the Financial Accounting Standards Board issued an accounting standards update which requires additional disclosures
with regard to an entity's balances of and amounts reclassified out of accumulated other comprehensive income in its financial statements. The Company adopted this guidance in the first quarter of
2013. All of the Company's related balances are cash flow

63

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

hedges,
and the required disclosures are reflected in Note 7 below. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.

Reclassifications

Certain reclassifications of the 2012 and 2011 amounts have been made to conform to the 2013 presentation.

2. Goodwill and other intangible assets

As of January 31, 2014 and February 1, 2013, the balances of the Company's intangible assets were as follows:

As of January 31, 2014

(In thousands)

Remaining
Life

Amount

Accumulated
Amortization

Net

Goodwill

Indefinite

$

4,338,589

$



$

4,338,589

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other intangible assets:

Leasehold interests

1 to 9 years

$

64,644

$

56,699

$

7,945

Trade names and trademarks

Indefinite

1,199,700



1,199,700

​

​

​

​

​

​

​

​

​

​

​

​

​

$

1,264,344

$

56,699

$

1,207,645

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

As of February 1, 2013

(In thousands)

Remaining
Life

Amount

Accumulated
Amortization

Net

Goodwill

Indefinite

$

4,338,589

$



$

4,338,589

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Other intangible assets:

Leasehold interests

1 to 10 years

$

106,917

$

87,074

$

19,843

Trade names and trademarks

Indefinite

1,199,700



1,199,700

​

​

​

​

​

​

​

​

​

​

​

​

​

$

1,306,617

$

87,074

$

1,219,543

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

The
Company recorded amortization expense related to amortizable intangible assets for 2013, 2012 and 2011 of $11.9 million, $16.9 million and $21.0 million,
respectively, all of which is included in rent expense. Expected future cash flows associated with the Company's intangible assets are not expected to be materially affected by the Company's intent or
ability to renew or extend the arrangements. The Company's goodwill balance is not expected to be deductible for tax purposes.

For
intangible assets subject to amortization, the estimated aggregate amortization expense for each of the five succeeding fiscal years is as follows:
2014$5.8 million, 2015$0.9 million, 2016$0.3 million, 2017$0.2 million and 2018$0.2 million.

64

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Earnings per share

Earnings per share is computed as follows (in thousands except per share data):

2013

Net Income

Weighted
Average
Shares

Per Share
Amount

Basic earnings per share

$

1,025,116

322,886

$

3.17

Effect of dilutive share-based awards

968

​

​

​

​

​

​

​

​

​

​

​

Diluted earnings per share

$

1,025,116

323,854

$

3.17

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2012

Net Income

Weighted
Average
Shares

Per Share
Amount

Basic earnings per share

$

952,662

332,254

$

2.87

Effect of dilutive share-based awards

2,215

​

​

​

​

​

​

​

​

​

​

​

Diluted earnings per share

$

952,662

334,469

$

2.85

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

2011

Net Income

Weighted
Average
Shares

Per Share
Amount

Basic earnings per share

$

766,685

341,234

$

2.25

Effect of dilutive share-based awards

3,883

​

​

​

​

​

​

​

​

​

​

​

Diluted earnings per share

$

766,685

345,117

$

2.22

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Basic
earnings per share was computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share was
determined based on the dilutive effect of share-based awards using the treasury stock method.

Options
to purchase shares of common stock that were outstanding at the end of the respective periods, but were not included in the computation of diluted earnings per share because the
effect of exercising such options would be antidilutive, were 1.1 million, 0.8 million, and zero in 2013, 2012 and 2011, respectively.

65

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Income taxes

The provision (benefit) for income taxes consists of the following:

(In thousands)

2013

2012

2011

Current:

Federal

$

530,728

$

457,370

$

385,277

Foreign

1,324

1,209

1,449

State

101,174

78,025

56,272

​

​

​

​

​

​

​

​

​

​

​

633,226

536,604

442,998

​

​

​

​

​

​

​

​

​

​

​

Deferred:

Federal

(16,132

)

9,734

8,313

State

(13,880

)

(1,606

)

7,293

​

​

​

​

​

​

​

​

​

​

​

(30,012

)

8,128

15,606

​

​

​

​

​

​

​

​

​

​

​

$

603,214

$

544,732

$

458,604

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

A
reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to income before income taxes is summarized as follows:

(Dollars in thousands)

2013

2012

2011

U.S. federal statutory rate on earnings before income taxes

$

569,916

35.0

%

$

524,088

35.0

%

$

428,851

35.0

%

State income taxes, net of federal income tax benefit

56,822

3.5

52,713

3.5

42,774

3.5

Jobs credits, net of federal income taxes

(19,348

)

(1.2

)

(16,062

)

(1.1

)

(15,153

)

(1.2

)

Reduction in valuation allowances

(437

)



(3,050

)

(0.2

)

(2,202

)

(0.2

)

Reduction in income tax reserves

(6,391

)

(0.4

)

(13,676

)

(0.9

)





Other, net

2,652

0.1

719

0.1

4,334

0.3

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

$

603,214

37.0

%

$

544,732

36.4

%

$

458,604

37.4

%

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

The
2013 effective tax rate was an expense of 37.0%. The 2013 effective income tax rate increased from 2012 due to the favorable resolution of income tax examinations during 2012 that
did not reoccur, to the same extent, in 2013. This rate increase was partially offset by the recording of an income tax benefit in 2013 associated with the expiration of the assessment period during
which the taxing authorities could have assessed additional income tax associated with the Company's 2009 tax year. In addition, the 2013 amounts reflect larger income tax benefits associated with
federal jobs credits. The Company receives a significant income tax benefit related to salaries paid to certain newly hired employees that qualify for federal jobs credits (principally the Work
Opportunity Tax Credit or "WOTC"). The federal law authorizing the WOTC credit expired for employees hired after December 31, 2013. Whether these credits will be available for employees hired
after December 31, 2013 depends upon a change in the tax law that extends the expiration date of these credit provisions, the certainty and timing of which are currently unclear.

The
2012 effective tax rate was an expense of 36.4%. This expense was greater than the federal statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total
effective tax

66

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Income taxes (Continued)

rate.
The 2012 effective tax rate of 36.4% was lower than the 2011 rate of 37.4% due to the favorable resolution of a federal income tax examination during 2012.

The
2011 effective tax rate was an expense of 37.4%. This expense was greater than the federal statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total
effective tax rate.

Deferred
taxes reflect the effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:

(In thousands)

January 31,
2014

February 1,
2013

Deferred tax assets:

Deferred compensation expense

$

8,666

$

9,276

Accrued expenses and other

9,067

5,727

Accrued rent

17,375

15,450

Accrued insurance

78,557

72,442

Accrued incentive compensation

3,385

15,399

Interest rate hedges

4,921

1,883

Tax benefit of income tax and interest reserves related to uncertain tax positions

3,439

2,696

Deferred gain on sale-leaseback

26,186



Other

15,094

13,914

State tax net operating loss carry forwards, net of federal tax

282

645

State tax credit carry forwards, net of federal tax

8,282

8,925

​

​

​

​

​

​

​

​

175,254

146,357

Less valuation allowances

(1,393

)

(1,830

)

​

​

​

​

​

​

​

​

Total deferred tax assets

173,861

144,527

​

​

​

​

​

​

​

​

Deferred tax liabilities:

Property and equipment

(307,644

)

(294,204

)

Inventories

(64,481

)

(67,246

)

Trademarks

(433,130

)

(435,529

)

Amortizable assets

(2,343

)

(6,809

)

Bonus related tax method change



(6,534

)

Other

(2,084

)

(4,498

)

​

​

​

​

​

​

​

​

Total deferred tax liabilities

(809,682

)

(814,820

)

​

​

​

​

​

​

​

​

Net deferred tax liabilities

$

(635,821

)

$

(670,293

)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

67

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Income taxes (Continued)

Net
deferred tax liabilities are reflected separately on the consolidated balance sheets as current and noncurrent deferred income taxes. The following table summarizes net deferred tax
liabilities as recorded in the consolidated balance sheets:

(In thousands)

January 31,
2014

February 1,
2013

Current deferred income tax liabilities, net

$

(21,795

)

$

(23,223

)

Noncurrent deferred income tax liabilities, net

(614,026

)

(647,070

)

​

​

​

​

​

​

​

​

Net deferred tax liabilities

$

(635,821

)

$

(670,293

)

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

The
Company has state net operating loss carry forwards as of January 31, 2014 that total approximately $4.3 million which will expire in 2028. The Company also has state
tax credit carry forwards of approximately $12.7 million that will expire beginning in 2021 through 2024.

A
valuation allowance has been provided for state tax credit carry forwards and federal capital losses. The 2013, 2012, and 2011 decreases of $0.4 million, $3.1 million and
$2.2 million, respectively, were recorded as a reduction in income tax expense. Based upon expected future income, management believes that it is more likely than not that the results of
operations will generate sufficient taxable income to realize the deferred tax assets after giving consideration to the valuation allowance.

The
Internal Revenue Service ("IRS") has previously examined the Company's 2008 and earlier federal income tax returns. As a result, the 2008 and earlier tax years are not open for
further examination by the IRS. The Company has filed an amended federal income tax return requesting a refund of approximately $5.1 million for its 2009 tax year. This amended return is
expected to be examined by the IRS. As the statute of limitations has otherwise closed for the 2009 tax year, the IRS' ability to assess additional income tax for 2009 is limited to the refund
requested on the amended income tax return. The IRS, at its discretion, may also choose to examine the Company's 2010 through 2013 fiscal year income tax filings. The Company has various state income
tax examinations that are currently in progress. Generally, the Company's 2010 and later tax years remain open for examination by the various state taxing authorities.

As
of January 31, 2014, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $19.6 million,
$2.4 million and $0.4 million, respectively, for a total of $22.4 million. Of this total amount, $3.6 million and $18.8 million are reflected in current liabilities
as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the consolidated balance sheet.

As
of February 1, 2013, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $22.2 million,
$2.3 million and $0.4 million, respectively, for a total of $24.9 million. Of this total amount, $1.5 million and $23.4 million are reflected in current liabilities
as Accrued expenses and other and in noncurrent Other liabilities, respectively, in the consolidated balance sheet.

The
Company believes that it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $11.2 million in the coming twelve months
principally as a result of the effective settlement of several outstanding issues. Also, as of January 31, 2014, approximately

68

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Income taxes (Continued)

$19.6 million
of the uncertain tax positions would impact the Company's effective income tax rate if the Company were to recognize the tax benefit for these positions.

The
amounts associated with uncertain tax positions included in income tax expense consists of the following:

(In thousands)

2013

2012

2011

Income tax expense (benefit)

$

(3,915

)

$

(16,119

)

$

97

Income tax related interest expense (benefit)

590

344

968

Income tax related penalty expense (benefit)

30

(200

)

63

A
reconciliation of the uncertain income tax positions from January 28, 2011 through January 31, 2014 is as follows: